Last week, markets rebounded to new highs amid generally positive economic news, the passage of the $1.9 trillion American Rescue Plan Act and continued progress in expanding vaccination programs. The Russell 2000 was the big winner, jumping 7.33% in the week and bringing the year-to-date performance to 18.96%. It was followed by the S&P MidCap 400, up 3.73% with a year-to-date return of 14.63%. The Dow Jones gained 4.08%, not to be left out, bringing the year-to-date performance to 7.10%. For the week, the S&P advanced 2.65% and the TSX 2.56%.
As was the case over the last couple of weeks, technology stocks continued to exhibit volatility as analysts using rising rates to discount future earnings played havoc with the sector. Small caps extended its recent leadership role while energy took a breather and healthcare lagged.
Fears of inflation and rising rates of past weeks relaxed as the 10-year Treasury retreated. Coming off historic lows, increasing rates, as modest as the increases may be, are grabbing the attention of a generation who have never experienced a bear market in bonds. With 10-year rates finishing the week at 1.62% and 30-year rates at 2.38%1, current rates are hardly cause for concern unless the trend accelerates as the year progresses. Interestingly, the Canadian 10-year finished the week at 1.58% and has risen 74 basis points year-over-year compared to the US Treasury of 66 basis points.
The week started with the NFIB Small Business (National Federation of Independent Business) index rising in February by .8 points to 95.8, still short of pre-pandemic levels. Forty percent of small businesses reported unfilled job openings, rising by 7 points over the previous month.2 On Wednesday, the US Bureau of Labor Statistics released the latest reading for February. The Consumer Price index seasonally adjusted increased by .4% in February after increasing .3% in January. The gasoline component accounted for over half of the seasonally adjusted increase, rising 6.4%.3 On Thursday, the Labor Department reported initial jobless claims dropped from the previous week to 712,000, a decrease of 42,000 from the week’s earlier revised higher number and below the consensus of 725,000.4 The continuing claims, however, rose by 2,087,376 to 20,116,302.
On Thursday, President Biden signed into law the $1.9 trillion American Rescue Plan. The plan’s efficacy is much debated, but the consensus was some plan was needed to help those most impacted by the government-mandated economic shutdowns. Initially, investor sentiment was supportive of the passage of the relief bill. President Biden also announced in a statement Thursday evening that he was directing states to make vaccines available to all adults by May 1. Also announced was the purchase of another 100 million doses of the Johnson and Johnson vaccine.
While many analysts’ general view is the market will move higher as the economy re-opens and earnings improve, the advance will be choppy. Optimism will advance the market until reality dictates otherwise. Unfortunately, the truth is shaded and challenging to determine in the face of global social and political polarization.
Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.
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