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MARKET ANALYSIS March 15th 2021

Updated: Mar 22, 2021


Stocks move back into record territory. Stocks moved broadly higher for the week, lifting most of the major benchmarks to new records. Investors seemed to remain focused on fluctuating longer-term bond yields and the discount they place on future earnings, resulting in substantial swings in the technology-oriented Nasdaq Composite Index. Shares in heavily weighted automaker Tesla rebounded after the previous week’s sell-off, lifting the consumer discretionary sector. The small real estate sector also outperformed within the S&P 500, while health care and energy shares lagged. The small-cap Russell 2000 Index outperformed and extended its recent market leadership, ending the week up roughly 19% on a price (excluding dividends) basis for the year to date. The week started ou>t on a down note as the yield on the benchmark 10-year U.S. Treasury note stayed near one-year highs. Bond yields retreated over the following days, which seemed to provide a lift to sentiment. Tesla and other high-growth stocks that had sold off in previous weeks were particularly strong as interest rate fears abated. On Wednesday, the Labor Department reported that core (excluding food and energy) consumer prices had increased only 0.1% in February, slightly below expectations. Core producer prices, reported Friday, rose 0.2%, in line with expectations and well below January’s 1.2% jump. Sentiment hits pandemic-era high as jobless claims hit new low. Much of the rest of the week’s economic data were arguably upbeat. Initial weekly jobless claims fell to 712,000, the lowest level since November—although, as some pointed out, this was still above the highest level reached during the Great Recession of 2007–2009. Continuing claims fell to 4.1 million, below expectations and the lowest level in a year. The gradually healing labor market seemed to be reflected in the University of Michigan’s preliminary gauge of consumer sentiment in March, which rose more than expected and hit a new pandemic-era high of 83—up from a low of 73.5 last April but still well below the pre-pandemic level of 101 in February 2020. Progress in the fight against the coronavirus also seemed to support sentiment. The U.S. administered a new high of 5 million doses of vaccine over the previous weekend, and, after seeming to plateau the previous week, the daily count of new cases resumed its decline. The White House announced a deal to secure another 100 million doses of the Johnson & Johnson vaccine, and President Joe Biden announced on Thursday evening that he was directing states to make vaccines available to all adults by May 1. GlaxoSmithKline and Vir Biotechnology also announced test results on Thursday, showing that their antibody treatment significantly reduced hospitalizations and deaths among COVID-19 patients. On Thursday, President Biden also signed into law the USD 1.9 trillion American Rescue Plan Act, following its passage in Congress on a party-line vote. Treasury Secretary Janet Yellen stated that direct USD 1,400 payments to most Americans, a key part of the bill, should begin showing up in bank accounts as early as the weekend. Munis get support from relief bill, while investors grow cautious in high yield corporate market. The Nasdaq gave back some of its gains after Treasury yields bounced back Friday to end higher for the week. (Bond prices and yields move in opposite directions.) The broad municipal bond market posted strong gains through most of the week as cash flowed back into the market and new issuance remained relatively modest. According to our traders, investor sentiment appeared to be supported by the passage of the American Rescue Plan Act, which includes substantial fiscal relief for state and local governments and other municipal borrowers. The headline deal of the week, California’s USD 1.8 billion general obligation and refunding bond sale, was met with strong demand and repriced to lower yields. Traders noted that heightened new issuance and expectations of forward supply weighed on investment-grade corporate bonds to start the week. However, progress around fiscal stimulus, stability in rates, and two days of lighter issuance provided tailwinds for the asset class, along with eased inflation concerns. Unfavorable technical conditions weighed on the below investment-grade market, however. Sellers outnumbered buyers, and high yield funds reported the largest weekly outflow since July.


Shares in Europe rose as the U.S. prepared to inject a massive amount of fiscal stimulus into the economy and the European Central Bank (ECB) pledged to buy more bonds to counter rising borrowing costs. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 3.52% higher. Germany’s Xetra DAX Index climbed 4.18%, France’s CAC 40 advanced 4.56%, and Italy’s FTSE MIB gained 5.00%. The UK’s FTSE 100 Index added 1.97%. Core eurozone government bond yields fell. The ECB announced it would accelerate bond purchases in the second quarter to curb the recent rise in yields, pushing bond prices up. Fourth-quarter gross domestic product (GDP) for the region was also revised down slightly, further suppressing yields. Peripheral eurozone government bond yields largely tracked core markets. UK gilt yields also declined broadly. However, optimism stemming from the UK’s vaccine rollout and the final approval of U.S. fiscal stimulus helped to moderate this decline later in the week. Better-than-expected January GDP data for the UK also supported gilt yields relative to other developed markets. Coronavirus cases increase, vaccination complications. Italy said it would impose a nationwide lockdown over the Easter weekend after an uptick in the number of coronavirus infections. Austria, Croatia, Cyprus, and Greece reported notable increases in infections, while case counts continued to rise in the Czech Republic, Hungary, Poland, Serbia, Norway, and Sweden. The European Union’s (EU’s) vaccination efforts suffered another setback when Italy banned the use of a batch of the Oxford-AstraZeneca vaccine, after reports of serious adverse effects. Denmark also suspended its use of the vaccine over concerns it might cause deadly blood clots. Meanwhile, the European Medicines Agency approved the Johnson & Johnson vaccine for use in the EU. The company said it expects to start delivering doses in April. ECB raises 2021 GDP and inflation forecasts. The ECB’s latest estimates call for EU GDP growth at 4% in 2021, an increase from the 3.9% expansion that the central bank forecast in December. The ECB also revised its inflation outlook to 1.5% from 1% for 2021 and adjusted its 2022 estimate to 1.2% from 1.1%. ECB President Christine Lagarde attributed these adjustments primarily to “temporary factors and higher energy price inflation.” UK GDP shrinks less than forecast. UK economic output shrank 2.9% sequentially in January due to a sharp slowdown in the services sector, official data showed. Economists in a Reuters survey had forecast a 4.9% contraction, likely reflecting the new lockdown measures instituted at the start of the year. Exports of UK goods to the EU, excluding gold and other precious metals, fell 40.7% from the preceding month. UK imports from the EU tumbled 28.8%.

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