Daily Market Notes: 3-29-2021

In another astounding late in the day move on Friday, the major indices turned what were moderate gains into huge record setting advances in both the Dow and S&P for no apparent fundamental reason. These advances resulted in the best one-day gains in three weeks and also avoided what could have been a second straight weekly loss for these two items.

For instance, the Dow was ahead by a modest 74 points at 2:50pm, at which time it accelerated to a 253 point advance by 3:45pm and then in one of the most astounding further gains ever, as if that was not enough, it then accelerated in those last 15 minutes by another 200 points to end with a final advance of 453 to a best-ever 33,073. It was led in this endeavor by AMGN, CAT, HD at a record high, HON, MSFT, NKE and V.

Ditto for the S&P, which followed the same pattern with a modest gain of 9 at 2:50pm which then became a 40 point advance by 3:45pm and added a hard to believe additional 25 points in those last 15 minutes to also end at its best price ever, a 65 point gain to 3974.

The Nasdaq, lagging once again, was actually lower by 95 at 2:50pm and instead of the usual pattern where the discrepancy between it and the Dow favors the Nasdaq, the exact opposite happened where the Dow strength pulled the Nasdaq higher and it ended with an astounding 256 point upside reversal to end 161 points higher at 13,138. But even this was not enough to salvage the week as it ended lower for the fourth time in the last five weeks due to softness in the former large technology leaders and large declines in the heroes of last year and early this year, namely the stay at home stocks like PTON, ZM, ROKU, DASH, DOCU and CRWD, among others.

The Russell 2000 Index of small stocks also turned a decline at 2:50pm of 4 points into a closing gain of 38 to 2221 but like the Nasdaq it also ended lower for the week. On the other hand, it is still the best performing index of 2021 with a gain  of 12.5% versus single digits for the others.

So all in all that last hour burst upward, for no apparent fundamental reason, seemed more like a quarterly witching hour situation where all sorts of strategies involving options, indices and individual stocks can move things around to the extent that they do on occasion. But on the other hand, who is complaining? But here we go with the VIX again, which closed at the lower levels of 18.86 which does leave the market vulnerable to a setback, which we will see on today’s opening, unless it can decisively break through on the downside to its ultimate support level of 10 which would then surely result in some sort of larger downside reversal. As an example, before the market exploded to the upside as previously mentioned, at 2:50pm the VIX was 21.49.

Stock prices have been churning in recent weeks, and momentum has often shifted sharply, sometimes by the hour. Rising expectations for a supercharged economic recovery are supporting many stocks on one hand, while worries about the possibility of higher inflation and rising interest rates are undercutting the market on the other.

This past week, everything from President Biden increasing his goal for COVID-19 vaccinations to a skyscraper-sized ship blocking the Suez canal sent markets swinging. Much of the stock market’s recent turbulence has been an after-effect of movements in the bond market, where Treasury yields have been largely climbing since last autumn. Higher yields can make investors less willing to pay high prices for stocks, with those seen as the most expensive taking the most pain. Companies that ask their investors to wait many years for the payoff of big profit growth have also been hit hard.

The yield on the 10-year Treasury rose to 1.67% from 1.61% late Thursday. But that’s still below where it was last week, when it rose to 1.75% and touched its highest level since before the pandemic began.

Financial stocks got a boost after the Federal Reserve said it will soon allow banks to resume buying back their own stock and to send bigger dividend payments to shareholders. The Fed restricted such moves last summer to force banks to hold onto cash cushions amid the coronavirus-caused recession. In addition, energy stocks benefited from a $2.41 rise in the price of U.S. oil, settling at $60.97 per barrel.

Stocks of companies that would benefit from more investment in infrastructure were also rallying sharply. Steelmaker NUE climbed by 9% for the biggest gain in the S&P and miner FCX rose by 5%.

This week sees some earnings before the floodgate of first-quarter reports starts next week. The lineup is as follows: today – CALM lower; Tuesday – CHWY, LULU, FACT and PVH; Wednesday – MU and Dow component WBA; Thursday – KMX.

Economic reports will have: Tuesday – January CaseShiller Home Price Index, March Consumer Confidence; Wednesday – March Chicago Purchasing Managers’ Index, February pending home sales; Thursday – weekly jobless claims, ISM March Manufacturing Index, February construction spending; Friday when the market is closed for Good Friday observance – March jobs reports which is expected to show a gain of 525,000 versus February advance of 379,000.

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.