Month: February 2021

Technology stocks sold off in the face of higher interest rates this week and pulled the broader market lower, while sectors benefiting from higher interest rates and inflation held up better. For the week, the Dow Jones Industrial Average fell 1.78 percent, the S&P 500 Index 2.45 percent, the Russell 2000 Index 2.90 percent and the Nasdaq 4.92 percent.

Over the month, the Nasdaq was still up over 1 percent, while the S&P 500 gained 2.6 percent.  The Dow increased 3.2 percent in February.

Airbnb (ABNB) was a corporate stand-out on Friday as its shares closed with a gain of 10 percent on the day. The company’s positive quarterly earnings for the close of 2020 were especially solid given the pressure on the travel industry throughout the COVID-19 pandemic.

Tesla (TSLA) shares took a tumble on Friday with a loss of 13.5 percent after the automaker announced that it would be shaving $1,000 off the price tags of its Model 3 and Y Long Range Dual Motor AWD. The company will temporarily pause the manufacturing and production of its Model 3 line due to a closure at its Fremont plant. Aside from the global shortage of chips used by Tesla in its vehicles, there are whispers of concern that demand may not be keeping pace with production of Tesla’s latest models.

Gold was down for the day with a loss of 1.92 percent after a recent upward trend. It dipped $34.00 to $1,738.00 per ounce. Silver followed suit for Friday with a decrease of 2.87 percent or $0.79 to close at $26.75 an ounce.

Friday’s crude oil prices still stayed above the $60 benchmark even with a 2.94 percent loss of $1.87 per barrel to $61.66.

Treasury bond yields spiked this week as selling in bonds accelerated. Yields rose across the curve and then shot up on Thursday afternoon, with the 10-year rising from 1.49 percent to 1.61 percent before quickly retreating. The spike was caused by a poor auction of 7-year Treasury bonds. Bonds recovered on Friday and iShares Barclays 20+ Year Treasury (TLT) finished the week down only 0.11 percent.

Consumer confidence improved in February. The Conference Board index rose to 91.3, up from 88.9 in January and beating expectations. The University of Michigan’s consumer sentiment survey also increased, matching the consensus forecast of a 76.8 reading.

New home sales were much stronger than predicted with an annualized sales pace of 923,000 in January, up from 885,000 in December. Analysts expected a decline to 850,000 homes.

Gross domestic product was revised to 4.1 percent growth, up 0.1 percentage points from the first estimate.

The Labor Department’s latest jobless claims report for the month showed a decrease from 841,000 last week to 730,000 through this week. In addition to being the lowest point of the jobless claim trend over the last 12 weeks, this month’s level quite handily beat the forecast of 838,000 first-time jobless claims.

Based on a report from the Commerce Department released on Friday, personal income for U.S. adults was up 10 percent on the month in January. The personal savings rate jumped 20.35 percent to reach its peak since May of last year. This accounted for the slightly lower than hoped for personal spending data on the month.

The 0.3 percent increase in the personal consumption expenditures price index beat the forecast 0.2 percent. The Federal Reserve benches the inflation rate against this index, which was only up 1.5 percent on the year, despite public confirmations from the Fed that the target inflation rate would be floated as high as 2 percent given the state of the economy.

The U.S. Dollar Index firmed on Friday after a European Central Bank official said the ECB should buy more bonds to halt rising interest rates. The U.S. Dollar Index increased 0.66 percent this week. The strong dollar weighed on emerging markets. iShares MSCI Emerging Markets (EEM) fell 6.57 percent on the week. iShares MSCI EAFE (EFA) saw a much smaller decline of 2.94 percent.

SPDR Energy (XLE) gained 4.27 percent on the week as crude oil climbed to near $63 per barrel midweek. SPDR Financial (XLF) declined 0.31 percent, SPDR Industrial (XLI) 0.41 percent and SPDR Communication Services (XLC) 1.26 percent. SPDR Technology (XLK) slipped 3.94 percent, SPDR Utilities (XLU) 4.97 percent and SPDR Consumer Discretionary (XLY) 4.99 percent.

It was a mixed trading day for stocks. The S&P 500 and Nasdaq closed lower, while the Dow remained slightly up. The S&P 500 lost 0.77 percent on Monday, which was its fifth day in a row of losses. Similarly, the Nasdaq was down 2.46 percent for the day, its largest daily dip over the past month. The Russell 2000 Index followed suit with a loss of 0.69 percent. With a narrow gain of 0.09 percent for Monday, the Dow managed to avoid closing in the red.

Tech stocks took a hit due to whispers of concerns over valuation inflation, which spurred today’s tech selloffs. Tesla (TSLA) shares lost 8.55 percent for the day. Likewise, Apple (AAPL) shares dropped 3 percent on the day, while Microsoft (MSFT) lost 2.7 percent.

Energy shares were among strong positive movers for the day.  Goldman Sachs stated Brent crude oil will hit the $70 mark in the second quarter this year and then up to $75 in the following quarter based on pent up consumer demand. West Texas intermediate crude oil futures (CL=F) rose 4.14 percent over the day to surpass the $60 per barrel benchmark to close at $61.69.

Copper extended its rally as well. It is closing in on its 2011 all-time high. SPDR Energy (XLE) climbed 3.46 percent. Global X Copper Miners (COPX) added 2.54 percent.

Gold (GC=F) prices continued their stretch of increases with a 1.79 percent rise to $1,809.20 an ounce by Monday’s close.

The 10-year Treasury Note yield rose higher than 1.39 percent during Monday’s trading, which was a new record high on the year, and closed up for the day at 1.37 percent.

Invesco S&P 500 Pure Value (RPV) gained 1.72 percent on Monday while the Pure Growth (RPG) version fell 3.18 percent, for a total performance gap of 4.90 percent on the day. Growth stocks, in particular technology, typically have low to no dividends. Many startup companies have no earnings. When interest rates are falling and growth is slowing, investors are willing to pay a premium for growth wherever they can find it. If inflation picks up, many commodity producers will experience rapid earnings growth. Industrial firms that pay hefty dividends will also enjoy faster earnings growth, pulling investor capital away from technology.

In terms of the pace of the U.S. economic recovery, the Chicago Federal Reserve’s National Activity Index January data released on Monday showed a higher-than-expected increase of 0.66, as opposed to the forecast of 0.41 (as downwardly edited in December 2020). This marked the ninth month in a row of gains for the Chicago Fed’s index and was largely boosted by strong increases in personal consumption and housing.

The much-anticipated $1.9 trillion relief and stimulus package was passed through a panel in the House of Representatives on Monday so that it will be voted on by the full House at the end of the week. The proposed package so far includes $1,400 stimulus checks in the form of direct payments to taxpayers with income-level restrictions.

Treasury Secretary Janet Yellen commented on Monday that the Biden administration will seek to increase the maximum corporate tax break to 28 percent and is also considering an increase in the capital gains tax rate.

Looking ahead for the week, Jerome Powell as Chairman of the Fed will make his semiannual report to the Senate Banking Committee regarding monetary policy with a focus on the recovery from the pandemic. Thus far, the Fed has maintained it will stay the course of its current asset purchase policy and that interest rates will continue to hover near zero percent for as long as the recovery demands and at least through 2023. Powell is expected to reiterate that message.

The Conference Board’s consumer confidence index will be released on Tuesday. Analysts expect a small decline of half-a-point from January.

New home sales for January are out on Wednesday. Housing analysts forecast an annualized pace of 855,000, up 13,000 from December.

Fourth quarter GDP will get its first revision this week. Economists predict the government will bump up growth by 0.1 percentage points to 4.1 percent.

Contra the Conference Board’s consumer confidence index, analysts predict the University of Michigan’s consumer sentiment survey will show a rise in confidence this month. The survey is out on Friday.

Retail earnings season heats up this week. Home Depot (HD), Macy’s (M), Lowe’s (LOW), TJX Companies (TJX) and Foot Locker (FL) report.

Other notable companies reporting this week include Square (SQ), Intuit (INTU), Nvidia (NVDA), Redfin (RDFN), Plug Power (PLUG), Salesforce.com (CRM), Moderna (MRNA), Wayfair (W), Vale (VALE), American Tower (AMT) and Fluor (FLR).