The stock market continued to be volatile last week, as it was in the week previous to that – with the main culprit once again being inflation fears and interest rate sensitivity. Stocks fell after Federal Reserve Chair Jerome Powell said the economic reopening could “create some upward pressure on prices” and the market reacted to those words. The Fed Chair also noted the recent runup in yields “was something that was notable and caught my attention,” but that he did not consider it a “disorderly” move. Bottom line, investors remained focused around the possibility of coming inflation and higher interest rates.
The yield on the 10-year Treasury has been climbing quickly this year. After ending last year below 1%, the benchmark yield popped to 1.63%, hitting its highest level of the year after the release of the February Jobs Report last Friday was much stronger-than-expected. The U.S. Department of Labor reported the economy added 379,000 jobs last month and the unemployment rate fell a notch to 6.2% (compared to consensus estimates looking for a gain of about 200,000 jobs and for the unemployment rate to come in at 6.4%). Hiring jumped as economic activity picked up, supported by a continued drop in COVID-19 cases and optimism surrounding the effectiveness of the vaccine rollout.
The majority of the job gains came from the beaten-up leisure and hospitality sector, which saw an increase of 355,000 jobs. Food services and drinking places gained 286,000 jobs, while accommodation employment rose 36,000 and amusements, gambling and recreation businesses added 33,000 jobs – according to the Department of Labor report. With the better-than-expected jobs data resulting in mixed implications for the markets – as more growth is a positive for the economy, but it also increases the chances rates will keep rising – a volatile day of trading on Friday ended a volatile week.
After being down about 150 points early on Friday, the Dow Jones Industrial Average finished the day 572 points higher, helped in part by a pullback in bond yields. Action in the tech-heavy NASDAQ Composite was even more notable, with the index down as much as 2.6% on Friday, before it posted a dramatic reversal and comeback, closing the day up 1.6%. Despite Friday’s reversal, the NASDAQ Composite still ended lower for the week, losing 2.1% to finish at 12,920. Of note, the NASDAQ briefly entered correction territory (a drop of 10% from its highs) last week, and was also briefly negative for the year. The Standard & Poor’s 500 Index snapped a two-week losing streak, rising .8% for the week to 3,842. The Dow Jones Industrial Average, which was the best performer as investors bet on a strong economic recovery (think rotation out of tech), rose 1.8% to finish the trading week at 31,496.
In the week ahead, the market will likely remain focused on the same themes – the level and direction of interest rates, the state of the pandemic and progress regarding vaccinations, along with the outlook for economic growth as the reopening continues – keep your seatbelts on!
All the best – Southport Station Financial Management, LLC