Market Perspective for March 21, 2021

The rise in long-term interest rates weighed on stocks last week. The Dow Jones Industrial Average slipped 0.46 percent, the S&P 500 Index 0.77 percent, the Nasdaq 0.79 percent and the Russell 2000 Index 2.77 percent.

The 10-year bond yield closed at 1.73 percent, up from 1.62 percent last week. The move was driven by dovish comments by Federal Reserve Chairman Powell following an uneventful FOMC meeting. Additionally, the Fed surprised markets by not extending a supplementary leverage ratio that allowed banks to hold more treasuries without reserve backing. Analysts expected the Fed would extend the rule, in part to slow the rise in long-term bonds. Instead, the Fed focused on providing more short-term liquidity. Moreover, interest rates didn’t spike on Friday following the news, indicating banks either plan on holding their treasuries or were already prepared for the rule change.

Bonds were down across the board with rates rising. iShares iBoxx Investment Grade Corporate Bond (LQD) declined 0.06 percent, iShares iBoxx High Yield Corporate Bond (HYG) 0.49 percent and iShares 20+ Year Treasury (TLT) 0.98 percent.

FedEx Corp. (FDX) shares surged 6.10 percent on Friday to close at $279.58 following a positive earnings report. They indicated demand for logistics and delivery services will maintain its elevated levels going forward.

Royal Caribbean Cruises (RCL) shares climbed up 2.61 Friday on the news of its plans to resume cruising operations out of the Bahamas to the Caribbean starting again in June. The company is still waiting for Centers for Disease Control and Prevention approval to resume its cruising operations again out of the U.S.

SPDR Communication Services (XLC) gained 0.96 percent on the week. An 8.07-percent rally in Facebook (FB) helped lift the sector. SPDR Healthcare (XLV) gained 0.46 percent. SPDR Energy (XLE) was the weakest sector after crude oil fell to $61.44. XLE lost 7.54 percent.

Economic data was strong last week. The Empire State index of manufacturing activity showed the New York Fed’s region was humming in March. The Philly Fed index more than doubled forecasts and hit a near 50-year high as prices surged the fastest since the Arab oil embargo of 1973.

The National Association of Homebuilders said its homebuilder confidence index fell to 82 in March. This is still well ahead of prior year levels and builders remain highly confident, but rising lumber prices are cutting into profits. Building permits and housing starts increased at an annualized pace of 1.68 million and 1.42 million, respectively, in February.

The U.S. dollar index spot closed up slightly by 0.06 percent on Friday at 91.92.

After a 7 percent slide for the previous day, Friday’s prices increased up to 2.9 percent at $61.72 a barrel for West Texas Intermediate crude oil and 2.6 percent for Brent crude oil at $64.95 a barrel. This was the largest daily increase for West Texas Intermediate crude oil prices in over two weeks.

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