Again, Equities Ignore Bears — and Rise

March 8, 2021

Market Update: Again, equity markets ignore “smarter” bearish arguments — and rise. Overall equity markets rose last week. Yes, you read that correctly. Overall, measuring from the close of Friday, Feb. 26, to the close of Friday, Mar. 5, the S&P 500 was up. Listen to the day-to-day financial news analysts — and you would think the markets dropped. Yes, longer-term bond yields pushed marginally higher, and a broad sector rotation continued. However, the S&P 500 managed to rise 0.8% after a strong Friday rally, led by sharp gains in technology, energy and banks. The Nasdaq, however, was down 2.1% on the week and now sits near flat year to date as the shift out of big-cap tech, which started in Q2 2020, continued.

Interest rates and stocks

The U.S. 10-year Treasury yield moved above 1.6% at one point. It moved back within the range seen over the course of the past cycle. While Fed Chair Powell did little to calm the market when he spoke this week, the economic data piled on as well. The best data was a stronger-than-expected 379,000 increase in U.S. payrolls in February and decline in the jobless rate to 6.2%. Although, 10-year yields spiked initially, they backed off throughout the day on Friday.

Bond rates bullish, again

We have covered interest rate rises and their affects on stocks this cycle for many of the past few weeks. This week’s podcast is going to be a worth listening to. We attached a few of the charts below. These charts indicate that, overall, US Treasury rates have been bullish, not bearish, for the S&P 500 this cycle. 2013? The 10-year Treasury rose 150 bps and the S&P 500 rose? 37% from the November 2012 Obama round #2 election through 2013–2017? In the Trump presidency’s first year, the 10-year Treasury rose? 150 bps. And the S&P 500 rose? 37%+ from November 2016 through year end 2017.

Again, bearish arguments on the markets almost always sound smarter. They are rarely correct as the markets lead and follow the economy — and the economy usually grows in a positive fashion.

Stimulus bill, again

Over the weekend, the Senate passed the American Rescue Plan Act. The vote was split along party lines, but the bill is expected to pass the House and go into law this week. The Act includes most of the House’s earlier proposals, including $350 billion in financial aid to state and local governments, an enhanced child benefits program, and $1,400 in rebate checks to most individuals with a lower income cutoff than in the House bill.

The minimum wage hike and an extra $100 in weekly unemployment insurance (UI) payments were cut out of the bill. However, part of UI benefits will be nontaxable for households earning less than $150,000, while the current $300 weekly top-up will be extended from March 14 to September 6.

again, stocks ignore the bears and rise

again, stocks ignore bear arguments and rise

Resources

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