Monday Morning Market Insights: Last Week in Review with Rusty Vanneman, Vol. 10
Good morning and Happy Monday!
In Like a Lion
They say March is the month that comes in like a lion and out like a lamb, at least when it comes to the weather, but I would argue that it may even apply to market action this month, too. Yes, the S&P 500 is still up on the month, thanks to a furious rally last Friday afternoon, but some parts of the market are up a lot more and some are notably lower.
On the positive side are value stocks, particularly the smaller and mid-sized market capitalization stocks. The energy, financials, and industrials sectors are ripping so far this month—and for the year, for that matter. The energy sector is up nearly 40% on the year already.
On the other side are growth-oriented stocks. The NASDAQ benchmark, for instance, has a loss on the month entering the new week, and that was even despite having arguably one of its most impressive intra-day recoveries over the last 3 years last Friday. The NAZ was down fairly big early Friday morning, then rallied sharply to close with a gain for the day. The technical analyst in me sees this as a potential plus, at least near-term, for growth stocks.
A near-term market low for growth stocks might even prevent some of the big growth/tech names that led the market in recent years from entering into bear markets (i.e., 20% or more off their recent highs), though some notable high-flyers like Tesla and NVIDIA are currently already off more than 20%.
But as investment research firm Bespoke Investments notes, the last few weeks have been particularly tough on the “…frothiest parts of the market that saw mind-boggling moves to the upside in the 2-3 months prior to their recent peaks. In areas like SPACs, software, AI, solar, EVs, and cannabis, we’ve seen declines across the board ranging from 25-60%. These areas could certainly continue lower, but for now the “frothiness” is completely gone.”
Personally, I also think removing some market giddiness is also a good thing for the high-flyers and for the market as a whole.
What to Watch
Let’s start with interest rates. Ten-year Treasury yields closed last week at 1.56%, up over another 0.1% for the past week. That marks the third week in a row there was such a move higher in interest rates, and arguably the leading reason for weakness in the aforementioned sectors and names. It should be noted that the NASDAQ has been down three weeks in a row, too. There is a connection.
On the back of the new stimulus via the COVID relief package ($1.9T), the 10-year yield has already moved above 1.60% early Monday morning.
That said, investors shouldn’t be scared of rising rates, as Goldman Sachs notes, “History shows that equity funds generally experience inflows when real rates are rising. During the past 10 years, the most favorable backdrop for equity fund flows has been when both real rates and breakeven inflation are rising. This is intuitive given that the dynamic typically occurs when growth expectations are improving.”
There’s not a lot of economic data to push the markets around this coming week, but this Wednesday has Consumer Price Index data, which could be interesting. It is expected to be a well-behaved number, but with the growing expectation that CPI will get uglier in the months to come.
Some Good News from Last Week
First and foremost, the US is now administering more than 2 million COVID vaccinations per day, and now over 83 million doses have been given. In turn, the economic thawing continues, and things are getting better with employment data last Friday showing a number well above expectations.
Bitcoin is back above $50,000. Next week at this time it could be either above $60,000 or below $40,000. Actually, I don’t really think so, but the point remains it’s still an extremely volatile market!
Now some quick goodies. First, Barry Ritholtz interviewed famed former portfolio manager Peter Lynch recently (disclaimer: I worked at Fidelity Research and Management back in the 1990s shortly after Peter Lynch formally retired from the Magellan Fund and I might have a bias!). In short, Ritholtz pitches Lynch as the GOAT (greatest of all-time) of stock pickers and money managers. Ritholtz makes a case that he deserves that consideration, and I’m not going to debate him on that one. Some highlights can be found here, including some good talking points.
Speaking of goodies, last week witnessed the annual publication of the Credit Suisse Global Investment Returns Yearbook 2021. For many in the industry, this is a must-read and the annual companion piece to arguably the best coffee table book for every investment advisor’s front lobby: “The Triumph of the Optimists.”
And it was an exciting week in our household—a state championship in high school hockey! It’s fun to see such joy in the young men given all the hard work they’ve put into their sport.
Have a great week! For more insights and commentary, visit our Financial Advisor Success Hub.
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