The 1% Move Report

Timely commentary on market performance whenever the S&P 500 changes more than 1% in a day.






Wealth Management — March 26, 2021

What Happened in the Markets?

  • US stocks moved higher on Friday as the S&P 500 gained 1.7% to close at 3,975. With the rally, the index is now up 5.8% year to date.   
  • US stocks rose sharply into the close on Friday, ending the week on a strong note with three out of the five trading days posting positive gains. A nearly 1% intraday rally in the last hour of trading helped the index finish the week up 1.6%. There was no clear catalyst for the day's move higher, although a rebound in oil prices seemed to help buoy sentiment into the weekend. While rates markets have been the main focal point on investors' minds of late, this week a spike in COVID-19 cases mainly in Europe and abroad spurred new concerns that a third wave may be brewing. Although small-cap stocks outperformed the other broad market indices today, they were the biggest laggards on the week, ending down 2.9%.
  • Ten of the 11 S&P 500 sectors finished the session higher, with Energy (+2.6%) and Information Technology (+2.5%) outperforming the broader market, while Utilities (+0.4%) and Communication Services (-0.3%) lagged. 
  • Rates were higher across the curve, with the 10-year Treasury yield at 1.67% as of the 4 p.m. equity market close. Gold was 0.3% higher while WTI oil closed sharply higher to just below $61 per barrel. The US dollar weakened modestly in the trading session, as measured by the US Dollar Index. 

Catalysts for Market Move

The S&P 500 rose 1.7% on Friday, and with Friday's session finished the week 1.6% higher. There was no obvious catalyst behind Friday's rally, although WTI oil prices rebounding back above $60 per barrel after a volatile week appeared to boost cyclicals and overall investor sentiment into the weekend. After falling nearly 10% from their mid-March highs, small-cap stocks (measured by the Russell 2000 Index) also rebounded Friday, outperforming both the S&P 500 and Nasdaq 100 indices. However, they still finished the week nearly 2.9% lower, as cyclical sectors largely underperformed this week as the market was led by defensives, Real Estate and Consumer Staples. Rising COVID-19 cases in Europe may have weighed on cyclicals this week, as markets contemplate what new lockdowns in Europe could mean for the global economic recovery. That said, US data still remains encouraging, particularly on the vaccination front, and US cyclicals did lead the market on Friday. Looking ahead, next week will see the end of 1Q, and as the calendar rolls to April, a busy data slate in the back half of the week, including the ISM manufacturing read on Thursday and the payrolls report on Friday.

The Global Investment Committee’s Outlook

Record and unprecedented stimulus from both the Fed and Congress has unleashed a V-shaped recovery in global trade, manufacturing, goods retailing, and housing. That momentum, coupled with the resolution of the US Presidential election and much better-than-expected initial trial outcomes for COVID-19 vaccines, has lifted equity markets to new all-time highs. Although investors are correct to be concerned about index level valuations, which have reached multi-decade extremes at more than 22x forward earnings, the economic and profit dynamics in 2021 support our base case year-end target of 3,900 for the S&P 500. Another round of fiscal stimulus, continuing Fed accommodation, and swelling pent-up demand for consumer services, may also support economic growth acceleration to 7%-8% real GDP, with inflation rebounding to more than 2%, a scenario that should support 27% year-over-year profit gains. However, optimal navigation of this burgeoning new business cycle will require care as Treasury rates are likely to move higher, creating a headwind for long-duration assets. In stocks, our preferences remain focused on quality and valuation support, attributes that remain in small caps, international stocks and cyclicals, including financials, which should benefit from the steeper yield curve. Dollar weakness is likely to continue as policy choices are debasing and relative growth outside the US becomes more compelling, supporting the case for emerging markets and commodities. In fixed income, the challenge is two-fold: Generating sufficient income, while also preserving capital, requires a diversified and active exposure, with our preference toward a mix of corporate credit (IG and HY), preferreds, leveraged loans, asset-backed securities, including select mortgage-backed, and dividend-paying stocks. Capital preservation and portfolio hedging from equity volatility may be achieved with a combination of cash and ultra-short duration instruments, and absolute return hedge funds. Real assets like gold, infrastructure and real estate for inflation support should be bought opportunistically.

Market data provided by Bloomberg.

Dow Jones Industrial Average (DJIA): A price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry.

NASDAQ Composite Index: A broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market.

S&P 500 Index: The Standard & Poor's (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization US stocks.

US Trade-Weighted Dollar Index: A weighted average of the foreign exchange value of the US dollar against a subset of the broad index currencies that circulate widely outside the US

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