Weekly Market Recap – Inflation Concerns Drive Choppy Week
- Despite it being choppy, most equity markets were positive last week. We saw global markets (represented by the MSCI All Country World Index) up 0.1% and domestic stocks (represented by the S&P 500 Index) up 0.8%.
- Inflation expectations have been driving markets and headlines over the last couple of weeks. With a backdrop of low interest rates, fiscal stimulus, and economic recovery as the vaccine rollout continues, concerns have increased that inflation could become a more prominent issue. On Thursday last week, Fed Chair Powell made comments that inflation could increase in the short term, but it would likely prove only temporary.
- With rising inflation concerns, bonds were sold off which drove yields higher (prices and yields are inverse). Inflation can be problematic for bonds, as most have stated flat interest payments that won’t increase with inflation. We share a similar opinion as Fed Chair Jerome Powell, that any short-term inflation is likely temporary.
- With concerns that the Fed may have to raise rates faster than expected, there has been a rotation in the global equity market from more expensive technology companies to more traditional value sectors, like financials and industrials. This type of rotation, which happened quick, is a big reason why we advocate for a diversified approach to investing.
- With OPEC announcing that production would remain steady through April, the price of crude oil jumped to $66 per barrel. That is the highest level in about two years.
- The U.S. monthly jobs report came out last week and said 379,000 jobs were added in February, which was higher than expected.
- In the rotation from technology to other sectors, the NASDAQ index has almost hit correction territory.
- With the Q4 2020 earnings season nearly completed, it appears corporate earnings have started their come back. According to Factset, 79% of the S&P 500 reported a positive earnings surprise (a drastically different report than expected). For the first quarter of 2021, expectations are for a 21.8% earnings growth relative to Q1 2020. As you’ll recall, the first quarter of last year was a brutal quarter for earnings.
- I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.
Chief Investment Officer