THE WEEK ON WALL STREET
Stocks were mixed last week as rising bond yields and heightening inflation fears sent stocks on a wild ride, capped by a remarkable Friday afternoon rally. The Dow Jones Industrial Average gained 1.82%, while the Standard & Poor’s 500 increased by 0.81%. The Nasdaq Composite index fell 2.06% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, rose 0.76%.
RISING YIELDS WHIPSAW STOCKS
The week began on an ebullient note as stocks surged on a retreat in bond yields and approval of a new vaccine, with sharp gains in reopening stocks, hard-hit technology companies, and small-cap companies. But the optimism proved fleeting as worries over rising bond yields upended the high valuation growth stocks and sent the broader market lower. Deteriorating investor sentiment culminated in a steep sell-off on Thursday, sparked by comments from Fed Chair Jerome Powell that did little to allay investors’ concerns about rising yields and festering inflation anxieties. Stock prices rallied on a strong employment report on Friday, but some of the enthusiasm was tempered by rising yields.
U.S. DOLLAR’S SURPRISING STRENGTH
Last week, the U.S dollar gained 0.93% against a basket of international currencies—a relatively big move in the currency market. Year-to-date the dollar has appreciated over 2%. U.S. dollar strength this year has defied the expectations of many analysts who anticipated that a global economic recovery would prompt a shift away from the safe harbor of the dollar toward non-dollar denominated assets. However, rising U.S. yields and a faltering economic rebound in Europe have instead propelled the U.S. dollar higher, raising concerns about tight financial conditions abroad and its potential adverse impact on an emerging markets recovery.
THE WEEK AHEAD: KEY ECONOMIC DATA
Wednesday: Consumer Price Index (CPI).
Thursday: Jobless Claims. Job Openings and Labor Turnover Survey (JOLTS).
Friday: Consumer Sentiment.
THE WEEK AHEAD: NOTABLE COMPANIES REPORTING EARNINGS
Wednesday: Campbell Soup Company (CPB).
Thursday: JD.com (JD), Ulta Beauty, Inc. (ULTA), Docusign (DOCU), GoodRx Holdings (GDRX).
This takes us to the wisdom of one Yogi Berra - "when you come to a fork in the road, take it!" If you want to trade on fear, you are better served by getting out of the market. If on the other hand, you prefer to forge ahead and continue to watch fundamental data, anticipate incoming fiscal stimulus, and trust in Fed guidance, then manage the risk and invest in long-term, sound, and solid choices. Ambivalence gets you nowhere.
The American economy should continue to expand as we add a $1.9 trillion stimulus shot and gains momentum on the rollout of the vaccines. The combined forces of monetary and fiscal stimulus with potential new jobs forthcoming as the economy reopens should provide us the means to re-balance the "Wall Street - Main Street" dichotomy. Yes, volatility is real, but it can be managed as we remain focused on the opportunities that present themselves and allow us to participate in the upward projected economic recovery.
Have a good week!