March 16, 2021

Week In Perspective: Market snaps back to record highs [12-March-21]

The Dow Jones Industrial Average set intraday record highs every day this week, ultimately rising 4.1% and closing at a record high. The Russell 2000 (+7.3%) and S&P 500 (+2.6%) set new highs for the first time in a month while the Nasdaq Composite (+3.1%) dug itself out of correction territory with a 3% gain.  

Every sector in the S&P 500 contributed to the weekly advance, with some investors fearful of getting left behind in the rally effort. The consumer discretionary (+5.7%), real estate (+5.7%), materials (+4.4%), utilities (+4.4%), industrials (+3.6%), and financials (+3.2%) sectors outperformed the benchmark index. The communication services sector (+0.7%) trailed with a modest gain.

The advance was supported by a confluence of factors, including the following:

  • A buy-the-dip mindset in the heavily-weighted growth stocks, including Tesla (TSLA), which rose 16%.
  • President Biden signing the $1.9 trillion stimulus bill and directing all states to make all adults eligible to be vaccinated no later than May 1.
  • The ECB saying it expects to conduct asset purchases at a significantly higher pace over the next quarter than during the first months of this year.
  • Weekly initial claims decreasing by 42,000 to 712,000 ( consensus 725,000) for its lowest level since the first week of last November.
  • No surprising headline inflation readings out of the Consumer Price Index and Producer Price Index reports for February.
  • Good-enough 3-yr note, 10-yr note, and 30-y bond reopening auctions.
  • New York Governor Cuomo saying that restaurants in New York City and New Jersey will expand indoor dining to 50% beginning March 19.

The news flow supported the reopening optimism and inflation expectations, sending the 10-yr Treasury note yield up another nine basis points to 1.64% by week's end -- its highest level since last February. Growth stocks trimmed their weekly gains with this upwards move.

Interestingly, at the beginning of the week, widely-followed money manager David Tepper told CNBC that the 10-yr yield is likely at, or near, the top of a new range due to the higher yields attracting foreign buyers. This was when the 10-yr yield was trading at 1.61%, so investors will continue to watch the 10-yr yield over the next few weeks for any uncomfortable swings.

The CBOE Volatility Index dropped 16.1% to 20.69, as investors reduced their hedging exposure amid the bullish price action in the market.

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