ND&S Weekly Commentary (3.15.21) – Equities Cheer Stimulus

March 15, 2021

Equity markets returned to record levels last week supported by fiscal stimulus and tempered inflation fears.

For the week, the DJIA advanced 4.17%, the S&P 500 gained 2.69% and the tech-heavy Nasdaq closed higher by 3.12%. International markets were also positive as the MSCI EAFE index (developed markets) closed higher by 3.00% while emerging market equities (MSCI EM) increased 0.70%. Small U.S. stocks, represented by the Russell 2000, soared by 7.36% for the week. Fixed income, represented by the Bloomberg/Barclays Aggregate (AGG), finished the week lower as the yield curve continued to steepen. Year-to-date, the AGG is down 3.35%. The 10 YR US Treasury closed at a yield of 1.64% (up ~8 bps from the previous week’s closing yield of ~1.56%). Gold prices closed at $1,705/oz. – up 1.27% on the week. Oil (WTI) finished at $65.56/bbl., down 0.73%.

Congress passed another massive relief package along party lines last week bringing the total to $2.8 trillion in stimulus since December 2020. Markets are expecting accelerating U.S. growth in 2021 but one of the feared outcomes is higher inflation. The U.S. Bureau of Labor Statistics reported last week that the Consumer Price Index (CPI) increased 0.4% in February matching expectations. This follows a 0.3% advance in January. On Friday, they reported that the Producer Price Index (PPI) increased 0.5% also matching expectations. So far, the economic data has not signaled runaway inflation but the bond market has begun to discount higher inflation with the recent spike in rates. This week, look for reports on retail sales, housing starts, and consumer sentiment. Additionally, the Federal Open Market Committee (FOMC) will have their March meeting and will host a press conference Wednesday at 2pm. They will need to strike a balance between offering an optimistic assessment of the economy while also reassuring that the recovery doesn’t overheat the economy causing a rapid rise in inflation.

Equity markets have started 2021 strong as the world economy has continued to heal from the Covid-19 pandemic. A rotation has begun to take hold from tech-heavy equities that have benefited from a shutdown to more cyclical sectors that would benefit from a reopening. We have been broadening out equity exposure within the U.S. and also outside the U.S. (both developed and emerging markets). We will continue to hold below-average duration exposure within fixed income as the potential for higher rates will weigh on bond prices.

March Madness tips off this week … a nice diversion from the day-to-day noise of the markets and Covid-19. Good luck on all your bracket picks and let’s all root for some upsets!

“The secret of happiness is something to do.” – John Burroughs