Stocks slide into March

03/01/21
  • Tech tumbles, NDX back to breakeven for year
  • Interest rates jump, Powell downplays inflation fears
  • This week: Jobs report, more retail earnings

The market will kick off a new month much the same way it did the last one: Looking to rebound after a sharp sell-off, this time as traders dumped tech stocks against the backdrop of rising long-term interest rates.

It was a volatile week: Even on days it closed higher, the S&P 500 (SPX) spent a good portion of the trading session in the red. The biggest hit came on Thursday, which coincided with the sharpest one-day increase in the 10-year T-note yield in three months:

Chart 1: S&P 500 (SPX), 12/18/20–2/26/21. S&P 500 (SPX) price chart. Volatile week.

Source: Power E*TRADE


The headline: Stocks stumble as interest rates jump, Fed chief downplays inflation risk.

The fine print: With long-term interest rates ticking higher toward the end of the month—the type of thing that typically unleashes butterflies in equity investors’ stomachs—Fed Chairman Jerome Powell attempted to ease inflation fears in testimony before Congress last Tuesday and Wednesday. On both days the stock market erased early losses to close up on the day.

The quote: “We do expect that inflation will move up. But we don’t expect the effects on inflation will be particularly large or persistent.” Fed Chairman Jerome Powell.1

The move: +0.4%, the jump in the 10-year T-note yield in February—the biggest monthly increase since November 2016. Some perspective: At around 1.42%, the yield has merely returned to the vicinity of its lowest levels between 2012 and early 2020, and the 10-year rate is still closer to the historic lows it hit last March than to the multi-year highs above 3.2% from October 2018.

The scorecard: The Nasdaq 100 (NDX) tech index suffered its worst week since October and, along with the SPX, posted back-to-back losing weeks for the first time since October:

US stock index performance table for week ending 2/26/20. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source (data): Power E*TRADE


Sector roundup: The strongest S&P 500 sectors last week were energy (+4.6%), financials (-0.2%), and industrials (-0.4%). The weakest sectors were utilities (-5%), consumer discretionary (-4.8%), and information technology (-3.7%).

Highlight reel: GameStop (GME) +104% to $91.71 on Wednesday, Workhorse Group (WKHS) -47% to $16.47 on Tuesday.

Futures action: April WTI crude oil (CLJ1) set more new contract highs last week, climbing to $63.81/barrel Thursday before retreating to $61.50 on Friday. A sharp late-week sell-off dropped April gold (GCJ1) to a nine-month low of $1,728.80 on Friday.

Last week's biggest futures up moves: March oats (ZOH1) +8%, March soybean oil (ZLH1) +8%, March VIX (VXH1) +7.8%. Last week's biggest futures down moves: March bitcoin (BTCH1) -18.2%, April platinum (PLJ1) -7.9%, April natural gas (NGJ1) -7.6%.

Coming this week

Retail stocks again grab the earnings spotlight:

Monday: Biohaven Pharmaceutical (BHVN), Zoom Video Communications (ZM), Scientific Games (SGMS), Cardlytics (CDLX), Workhorse (WKHS), Lemonade (LMND), Novavax (NVAX)
Tuesday: AutoZone (AZO), Box (BOX), Kohls (KSS), Campbell Soup (CPB), Target (TGT), Quanterix (QTRX), International Game Technology (IGT), Ross Stores (ROST), Urban Outfitters (URBN), Lemonade (LMND), Nordstrom (JWN)
Wednesday: American Eagle Outfitters (AEO), Wendy’s (WEN), Dycom Industries (DY), Dollar Tree (DLTR), Marvell Technology (MRVL), Snowflake (SNOW), Vroom (VRM), Okta (OKTA)
●Thursday: Burlington Stores (BURL), BJ's Wholesale Club (BJ), Broadcom (AVGO), Kroger (KR), Guidewire Software (GWRE), Purple Innovation (PRPL)
Friday: Big Lots (BIG)

The week’s economic calendar kicks off with manufacturing and ends with the latest jobs report:

Monday: Markit Manufacturing PMI Final, ISM Manufacturing Index, Construction Spending
Tuesday: Vehicle sales
Wednesday: ADP Employment Change, Markit Services PMI Final, ISM Non-Manufacturing Index
Thursday: Challenger Job Cuts, Productivity and Labor Costs, Factory Orders
Friday: Employment Report, Balance of Trade, Consumer Credit Change

Go to the E*TRADE market calendar for an up-to-date earnings schedule and complete list of splits, dividends, IPOs, and economic reports. The Active Trader Commentary also lists earnings announcements, IPOs, and economic report times each morning.

Marching forward

Despite some volatility at the end of both January and February, 2021 is off to a decent start by historical standards.

From 1991–2000, the SPX posted a net gain in the first two months of the year 18 out of 30 times, with a median return of 1.1%. The last 10 years were a bit more bullish, with the SPX banking a 3.9% January–February median return.

This year ended up a little better than the long-term average: The SPX was up 1.5% for the year at Friday’s close—the eighth time in the past decade that the index notched a positive January–February return.

The new month is also, to some extent, a tale of two time periods. Since 1960, March has been a positive month for the SPX 61% of the time, with a solid 1.1% median return (sixth-strongest of all months). Over the past 20 years, though, it’s been a little weaker, closing higher only 55% of the time (and just half the time in the past decade), with a median return of 0.8%.2

More often than not, however, March has at least gotten off to a good start: Since 2001 the SPX has closed higher 70% of the time on the first trading day of the month.

 

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1 AP News. Fed’s Powell: Recovery incomplete, high inflation unlikely. 2/23/21.
2 Based on S&P 500 (SPX) daily and monthly closing prices, 1960–2021. Supporting document available upon request.

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