ND&S Weekly Commentary 3.1.21 – Higher Rates Rattle Equity Markets

March 1, 2021

Equity markets retreated last week as bond yields rose. The yield on the 10 year U.S. Treasury note settled at 1.45% on Friday from a weekly high of 1.51%. This represents an increase of 11bps from the previous week. For the month of February, the 10 year yield rose 0.37 percentage points, the largest one month increase in yield since November 2016. Investors’ concerns seemed to center around possible higher inflation and higher U.S. debt levels. As a result, equity prices for the week declined across the board with the DJIA, S&P 500 and NASDAQ down 1.7%, 2.4% and 4.9%, respectively. International equities also declined with the MSCI EAFE dropping 2.8% and the MSCI Emerging Markets index down 6.3%. The best performing sector last week was energy as oil prices continued to stay above $60 a barrel. The worst performing sector, as might be expected with rates rising, was utilities. Gold also declined last week to $1,743/oz. as a stronger dollar and higher yields weighted on gold prices.

Economic data released last week was mostly better than expected. The U.S. economic growth rate was revised higher for the 4th quarter to 4.1%. Durable goods orders increased 3.4% in January which easily beat estimates. Personal income surged 10%, while spending rose 2.4% as additional stimulus was received in January. This week’s economic news will include ISM services and manufacturing indexes. The highlight for the week will be the February jobs report which is expected to show continued improvement in jobs. Expectations are for an additional 150,000 jobs, an improvement over last months’ number of only 49,000 jobs. Moving forward economic numbers should start to strengthen as the vaccine rollout accelerates and additional stimulus is approved.

“I believe that every human mind feels pleasure in doing good to another.” – Thomas Jefferson