Week of March 8, 2021

Investors saw continued volatility in the U.S. equity markets last week, as the week provided both extreme highs and lows to finish mixed.  The huge rally last Friday brought the Dow and S&P 500 into the black, gaining 1.8% and 0.8%, respectively.  While the NASDAQ posted strong gains on Friday, high-flying tech stocks dropped 2.1% on the week.

A long-awaited rotation from technology – representing classic growth stocks – to financials and energy – representing value stocks – has been underway for the last few weeks.  Growth stocks have enjoyed a significant performance advantage for the last two years, especially over the last year with COVID lockdowns.  Home office equipment and on-line shopping are the areas also under pressure by this rotation.  Energy, namely the rapidly rising oil prices, have seen significant gains in recent weeks.

The sell-off in government bonds also continues as bond yields see additional gains (bond price and bond yields are inversely related).  The yield on the 10-year Treasury provides the bellwether measure of bond yields and has been rising since last year’s low of 0.55% - mostly coming in the last five weeks.  Last week, that yield drifted between 1.5% and 1.6%.

Pushing interest rates higher is the concern over rising inflation.  As the U.S. economy begins its accent out of recession, noted by a better-than-expected jobs report Friday, inflation is expected to be fueled by the Senate’s passing of the $1.9T stimulus package now heading to the House for amendment and vote there.

The Atlanta Federal Reserve last week estimated first quarter 2021 GDP (gross domestic product) to rise as much as 9.5%, while other economists’ estimates to range from 5% to 10%.