Daily Market Notes: 3-1-2021

Friday’s last trading day of the month resulted in a lower market and the second straight weekly loss for the S&P. Despite these recent developments, as hard as it is to realize this due to some really poor days lately, the Dow finished higher for the month by 3% and was up in February for the third month out of the past four. The S&P gained 2.6% in February after its 1.1% decline in January while the Nasdaq was higher by 1% for its fourth straight positive month even though last week was its worst one in the past four months, go figure.

The big story last week was the rise in bond yields, which continued the pattern of selling out of the former high technology leaders and rotating into the economically sensitive ones such as financials, energy and travel-related.

But this turned on Friday as bond yields finally came down after the 10-year Note reached perhaps an unsustainable 1.6% intraday on Thursday and continued declining on Friday to end at 1.42%.

As a result of this, the Dow was lower all day and the S&P and Nasdaq tried to be higher until some last-minute shenanigans pulled the former two way off of the levels that they had been trading at just minutes before the close.

For instance, the Dow was off all day and lower by 200 points with 10 minutes to go because of selling in recently strong BA, CAT, CVX, GS, JPM, JNJ and weakish CRM. But then all of a sudden in one of the worst last 10 minutes of market history, it literally fell apart and ended with a closing decline of 469 to 30,932. The S&P did even worse as it turned a nice gain of 22 points at 3:50pm into a closing decline of 18 to end at 3811.

The Nasdaq was actually ahead by 217 points at this time and was dragged lower by the negative action in the other two and ended with a modest advance of 72 to 13,192. And miracle of miracles, after awful price action the past several days, the former technology leaders woke up as MSFT, AAPL, AMZN all had the nerve to advance while BKNG continued its better action to the upside as well. The Russell 2000 Index of small stocks did little at up 1 to 2201.

Breadth numbers were slightly negative and the VIX came down a bit to 27.95 despite the selling in the S&P, which looked very contrived and in my opinion was a way of taking advantage of mutual fund investors in S&P-related items who were looking to sell and according to the rules of mutual funds, always get the closing price for better or worse, so instead of selling while this item as higher by 22 with 10 minutes to go, they sold out 40 points lower at down 18!

In addition to treasury yields finally easing  back down, investors continued to watch Congress which finally passed President Biden’s $1.9 billion stimulus package early Saturday morning despite solid Republican opposition. The stimulus bill would include yet another round of one-time payments to most Americans, including an expansion of other refundable tax credits like the child tax credit, as well as additional aid to state and local governments to combat the pandemic.

The recent rise in bond yields reflects growing confidence that the economy is on the path to recovery, but also expectations that inflation is headed higher, which might prompt central banks eventually to raise interest rates to cool price increases. Rising yields can make stocks look less attractive relative to bonds, which is why every tick up in yields has corresponded with a tick down in stock prices.

Technology stocks have been impacted more than the broader market by the rise in bond yields as they tend to trade at higher valuations than the overall market. Investors are also betting that with vaccinations, the coronavirus pandemic may be coming to an end which would pivot consumer behavior away from online-only shopping.

For 2021, the consensus is for $175 in S&P earnings which means that the S&P is trading at a 23 multiple, higher than the historical average but not too much considering the record low interest rates currently in existence. The fourth quarter of 2020 is now projected to show a slight earnings gain of 2.8% which is much better than expected at the start of the earnings season last month with the largest profit declines expected in the energy and industrial sectors.

Fourth-quarter earnings are in the home stretch with retailers bringing up the rear and this week will see the following: today – XRAY higher ; tonight – ZM, NVAX, NIO, CLOV; Tuesday – AZO, HPE, ROST, TGT; Wednesday – DLTR, MRVL, SNOW; Thursday – AVGO, COO, COST GPS, KR.

Economic reports will have – today – February ISM Purchasing Managers’ Index, January construction spending; Wednesday – February ISM Services Index, Fed Beige Book; Thursday – weekly jobless claims, January factory orders, January durable goods orders; Friday – February jobs report for which the expectation is for 200,000 after 49,000 were added in January. 

Donald M. Selkin

Chief Market Strategist

 

Disclosures:

 Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our current or potential customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analysis concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, and Associated Press}. It is possible that at any given point in time, the author, Newbridge Securities, or one or more of its employees or registered individuals associated with Newbridge Securities, may hold a position, either long, or short, as well as options, bonds or other instruments in the companies mentioned in this report.