All three major stock market indices rallied nicely last week. The NASDAQ Composite, which broke a three week losing streak, rose 3.1% to 13,320 – the Standard & Poor’s 500 Index added 2.6% to a record 3,943 – and the Dow Jones Industrial Average, which performed the best of the three major averages, jumped 4.1% to a record high 32,779.
The Dow Jones Industrial Average has now outperformed the NASDAQ four weeks in a row. Investors have been shifting towards sectors such as energy, financials, materials, and industrials which are seen to benefit from the reopening and a strong economic recovery. Many of these companies are in the Dow, while companies that benefitted from the stay-at-home and work-at-home trends during the pandemic, such as internet and technology stocks, are more represented in the NASDAQ index.
There is no way to know how long this rotation will last, but long-suffering value investors have been waiting a long time for this. Value investing has been underperforming growth investing for several years now, and many value investors believe things are finally lined up for them. So along with the overall battle between bulls and bears, we’ll also be tracking the now competitive battle of growth versus value.
Looking at the benchmark 10-year Treasury, which has been a focal point for the financial markets of late, we see the rise in yields is continuing. The 10-year yield hit 1.64% on Friday, its highest level in over a year (it began the year below 1%). Rising rates provide competition for stocks, as higher interest rates make fixed income investments (read bonds) more attractive.
We’ll get a notable handful of “off-season” earnings reports in the week ahead. Nike, Dollar General, and FedEx (which is considered a bellwether for the economy as a whole) are all scheduled to report on Thursday. Also out this week is economic data for February including Retail Sales, Housing Starts, and Industrial Production – along with the Federal Open Market Committee’s policy decision. Don’t expect any changes in interest rates from the Fed, but we’ll be watching for any other adjustments it might make along with analyzing details from its press conference Wednesday afternoon.
As always, don’t hesitate to contact us with any questions you may have or if you would like to set up a meeting.
All the best – Southport Station Financial Management, LLC