Hello all – we hope you had a nice March.
It was another positive month for the markets. The Dow was up a solid 6.6%, the S&P 500 gained 4.3%, and the Nasdaq was again the laggard with a 0.4% return.
This was also the end of the first quarter. The Dow returned 7.8% over that time, the S&P added 5.8%, and the Nasdaq rose 2.8%.
It was another positive month for the markets. The Dow was up a solid 6.6%, the S&P 500 gained 4.3%, and the Nasdaq was again the laggard with a 0.4% return.
This was also the end of the first quarter. The Dow returned 7.8% over that time, the S&P added 5.8%, and the Nasdaq rose 2.8%.
This month was a funny one because the three main indexes seemed to move in different directions every day.
At the end of the day, when someone would ask “How did the market do?”, you usually couldn’t give an easy answer of “up” or “down.” The Dow might have been up but the Nasdaq was down, or vice-versa. The indexes tend to move together about 80% of the time. As you can see in the chart below, this month it dropped down to near 60%.
At the end of the day, when someone would ask “How did the market do?”, you usually couldn’t give an easy answer of “up” or “down.” The Dow might have been up but the Nasdaq was down, or vice-versa. The indexes tend to move together about 80% of the time. As you can see in the chart below, this month it dropped down to near 60%.
Here’s how the markets looked over the course of the month:
So, what’s going on? It seems to be a continuation of a trend that started last month. Investors are rotating out of previous high flyers like tech stocks, which are a large portion of the Nasdaq index. Then they’re moving into investments that had been underperforming, thinking they have more room to rise.
Tech stocks that don’t make money excelled in 2020, but have dropped sharply this year (how nice would it be to have a company that doesn’t make money, but still see your stock rise?).
Tech stocks that don’t make money excelled in 2020, but have dropped sharply this year (how nice would it be to have a company that doesn’t make money, but still see your stock rise?).
_____
Bonds were again a big story this month. Their price continues to fall and their yields rise. That means in your investment account, you’ll see your bond holdings lost value but the interest you earn will be higher.
_____
There wasn’t a lot of market-moving news this month. The economy continues to slowly reopen, with Covid cases falling and vaccinations rising.
The government also looks prepared to do another massive stimulus/infrastructure program. The latest bill again looks like more of a Democrat policy wish-list rather than stimulus that will produce tangible benefits, but trillions flooding the market will likely push markets higher.
It looks like massive tax increases could accompany this latest bill, too. That will be a negative for businesses - but not necessarily bad for the market. We saw this under the Obama administration. Their economic policies were nothing short of horrendous and we even saw a recession in corporate earnings - yet the market moved higher. This was largely due to the record amounts of stimulus (printed money) being injected in the economy.
The Fed has made it clear that they have no intentions of pulling back on the stimulus any time soon, so it may continue to help the markets.
We worry that this unprecedented level of stimulus and government spending will have severe negative long-term consequences, but there doesn’t appear to be any concerns right now.
The government also looks prepared to do another massive stimulus/infrastructure program. The latest bill again looks like more of a Democrat policy wish-list rather than stimulus that will produce tangible benefits, but trillions flooding the market will likely push markets higher.
It looks like massive tax increases could accompany this latest bill, too. That will be a negative for businesses - but not necessarily bad for the market. We saw this under the Obama administration. Their economic policies were nothing short of horrendous and we even saw a recession in corporate earnings - yet the market moved higher. This was largely due to the record amounts of stimulus (printed money) being injected in the economy.
The Fed has made it clear that they have no intentions of pulling back on the stimulus any time soon, so it may continue to help the markets.
We worry that this unprecedented level of stimulus and government spending will have severe negative long-term consequences, but there doesn’t appear to be any concerns right now.
_____
Switching gears to the economy, which was a mixed bag this month. There were a lot of issues associated with the winter weather and big Texas freeze back in February, causing some distortions in economic data.
Retail sales, durable goods, and industrial production all saw declines, and all were attributed to the weather.
Retail sales, durable goods, and industrial production all saw declines, and all were attributed to the weather.
The strength of the manufacturing and service sectors took a dip lower, too.
Comments from the companies they poll to get this data were interesting, too. Many of them are seeing issues with inflation and having a hard time finding employees.
Here’s a look at inflation levels at the Producer (manufacturer) level, showing inflation rising:
Interestingly, the Fed puts out data on manufacturing by region in the U.S., and they are all showing significant strength. The Philadelphia region was especially notable, rising quickly to its third-highest level on record.
The employment picture looks to be improving, too, as fewer people are filing for unemployment.
Lastly, confidence appears to be picking up, with both the general public and with small businesses.
_____
Where does the market go from here?
The overall markets look pretty unattractive on a short-term basis (looking out a couple weeks). Now is a better time to look for undervalued individual stocks.
We’re a little more cautious for the longer term. We think the economy will continue to improve, but the froth in the markets, along with a steady increase in inflation, could have the markets looking different in the future.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
The overall markets look pretty unattractive on a short-term basis (looking out a couple weeks). Now is a better time to look for undervalued individual stocks.
We’re a little more cautious for the longer term. We think the economy will continue to improve, but the froth in the markets, along with a steady increase in inflation, could have the markets looking different in the future.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
