Market Recap Week Ending March 19

March 20, 2021

Monday – Dow +175 to 32,953 (14th closing record high of 2021), Nasdaq +140 to 13,459 and the S&P +25 to 3,968 (record high). The Dow rose for a seventh consecutive trading session, its longest streak since last August and the S&P was up for the fifth trading session in a row. The beaten-up growth stocks were the best performing, with the Nasdaq climbing 1.1% today. Air travel over the weekend was the busiest it has been in a year and as a result American (AAL) and United (UAL) traded up smartly (7.7% and 8.3% respectively). The 10-year U.S. Treasury yield fell back 2 bp to 1.60% on fears that the AstraZeneca (AZN) vaccine causes health issues. The vaccine has been suspended for use against the Covid-19 virus in 5 European countries. Nine of the eleven S&P sectors traded higher, led by Industrials, Utilities and Consumer Discretionary. Energy had a rare off day considering its run this year and was the worst sector today, down 1.25%.

Tuesday – Dow (127) to 32,825, Nasdaq +11 to 13,471 and the S&P (6) to 3,962. Poor economic data had all three indices regrouping today after their most recent rallies. February retail sales fell more than expected, down 3% but in a silver lining, January’s number was revised higher by 2.3% for a final 7.6% reading. Industrial production for February also missed expectations, down 2.2% vs an expected 0.5% gain. Both misses were blamed on severe winter weather. In addition to the poor retail sales number, the focus shifted to the Fed’s two-day meeting that began today and for which Fed Chair Powell will brief the markets tomorrow afternoon. All eyes and ears will be acutely attuned to the language of the briefing, attempting to glean any insight as to whether the Fed is going to move off their dovish, accommodative, easy-money posture, and perhaps lay the groundwork to curtail their monthly purchases of Treasury bonds. The 10-year U.S. Treasury yield was down slightly today after strong demand was seen for the government’s sale of $24 billion 20-year bonds. Communication Services and Tech led only four of the eleven S&P sectors higher with energy bringing up the rearguard, down another 2.83%.

Wednesday – Dow +189 to 33,015 (15th record high of 2021), Nasdaq +53 to 13,525 and the S&P +11 to 3,974 (record high). The 10-year Treasury yield jumped up to 1.69% driving all indices lower until Chairman Powell reiterated that the Fed would not raise interest rates until the end of 2023. The announcement led all three indices higher with both the Dow and the S&P setting new closing highs. Six of the eleven S&P sectors traded higher led by Consumer Discretionary, Industrials, and Energy. After Powell’s comments, which were widely praised as the best press conference he has held as Fed Chair, the 10-year retreated to 1.66% and the markets breathed a sigh of relief. The Fed also boosted their economic expectations to 6.5% annual GDP growth for 2021, the largest number since the mid 80’s…The IRS announced that the deadline to file tax returns would be delayed until May 15th…Williams Sonoma (WSM) continues to thrive in the pandemic era, popping 11% after delivering better than expected results, increasing their dividend by 11% and announcing a $1 billion stock buyback program.

Thursday – Dow (153) to 32,862, Nasdaq (409) to 13,116 and the S&P (58) to 3,915. The tranquility of the U.S. 10-year Treasury yield lasted exactly 1 day. Rates zoomed up 11 basis point today to 1.75% before settling in at 1.72% and sunk all three indices with the Nasdaq fairing the worst, down 3%. Bank stocks jumped on the rate increase with US Bancorp (USB) +3.3%, Wells Fargo (WFC) +2.4%, JPMorgan (JPM) +1.7% and Bank of America (BAC) +2.6%. Jobless claims rose unexpectedly to 770,000 claims vs expectations of 700k and last week’s 725k print. This is the worst jobless claims number since mid-February. The Philly Manufacturing Index came in at 51.8 blowing out expectations of 22 and reaching its highest level since 1973. Energy was down 4.68% after a new Covid-19 lockdown was imposed on Paris and other regions in France due to an uptick in cases. In addition, rising interest rates in the U.S. generally coincides with a stronger US dollar which also pressures oil prices as the commodity is priced in dollars and there exists an inverse relationship between the price of oil and the price movement of the dollar.

Friday – Dow (234) to 32,627, Nasdaq +99 to 13,215 and the S&P (2) to 3,913. Amongst the nuggets in last week’s “week in review” was the fact that the Fed may not extend a program beyond March 31st that allowed banks to hold Treasuries on their books without them counting against their leverage ratios. Today, the Fed declined to continue that program and as a result banks sold off, bond prices were pressured as banks began to clear Treasuries off their balance sheet, and the 10-year yield bounced off its low for the day, reversing higher until it settled relatively unchanged at 1.73%. Six of the eleven S&P Sectors traded higher with Consumer Discretionary and Communication Services leading the winners while Real Estate and Financials were the worst performers…FedEx (FDX) popped 6% after growing revenues 23% in the third quarter and boosting guidance after the close last night…Nike (NKE) traded down 3.97% after announcing a mixed earnings report last night, confirmed future job cuts and noted that backlogged ports delayed shipments to its retail stores and wholesale partners….

The week in review…Dow (151) or (0.46%) Nasdaq (104) or (0.78%) or and the S&P (30) or (0.76%). Even though the U.S. 10-year Treasury yield jumped 10 basis points this week and spurred considerable volatility during the week, the end result was sound and fury signifying nothing; none of the three indices were down as much as 1% this week. However, with the Fed confirming no rate hikes this week until 2023, with $1.2 trillion of the $1.9 trillion American Rescue Act stimulus set to hit the economy in the next six months and with the Fed declining to extend the Supplementary Leverage Ratio (SLR) exclusion of Treasuries, the path of least resistance for interest rates on the longer end of the curve is higher. The three Treasury auctions in the middle of the week will be under high scrutiny for any hint of lack of demand which would also push rates higher. There is also a slew of economic news pending next week that will need to thread the “goldilocks” needle in order not to spook the bond markets further.

What we are watching next week:

Multiple Fed Regional Presidents will be speaking throughout the week as well as Fed Chair Powell who has several engagements this week: Monday at the Bank of International Settlement Summit, Tuesday along with Treasury Secretary Yellen in front of the House Financial Services Committee, and Wednesday again with Secretary Yellen, in front of the Senate Banking Committee.

Monday – Existing Home Sales
Tuesday – Adobe (ADBE) and GameStop (GME) report earnings, New Home Sales, $60 billion Treasury 2-year note auction.
Wednesday – Durable goods, Manufacturing PMI, Services PMI, $61 billion Treasury 5-year note auction.
Thursday – Darden Restaurants (DRI) reports earnings, Initial Jobless Claims, third reading of Q4 GDP, $62 billion Treasury 7-year note auction.
Friday – Personal income and spending, Consumer Sentiment.

Strategy update…Marin Wealth Portfolios bond allocations have consistently been shorter in duration vs the benchmark U.S. Aggregate Bond Index. Duration measures the interest rate sensitivity of a particular bond or bond portfolio. The larger the number, the more sensitive it is to interest rate fluctuations. Historically the U.S. Aggregate has had a duration of six years but over time that number has been stretching longer. Due to the movement in the 10-year yield and the assumption that this trend will continue, we wanted to continue to shorten our duration in order to mitigate the effect of potential rising rates. As a result, we executed a trade yesterday to cut our exposure to the U.S. Aggregate (JAGG or EAGG in our portfolios) by selling roughly 44% of that position and replacing it with JSCP, which has on average a 2-year duration. This has the effect of cutting our interest rate risk if rates continue to rise, yet still provides our portfolios with a buffer should the equity markets falter. If you have any questions, please feel free to call me to discuss further.

P.S. If you know of any friends or family members who could benefit from our services and these types of communiques during these unique times, we are here to help.

Disclaimer: This is not a recommendation to buy or sell any of the securities listed above. I personally, or a family member whose account I control, have positions in the following securities…AAPL, Bitcoin (physical), Chainlink (physical), Ethereum (physical), ETHE, GBTC, GME April $20 Puts, LAZR, TSLA, VLDR and WKHS.