Broad Market Route? | March 5, 2021

AUTHOR: Jason J. Roque, MS, CFP®, APMA®, AWMA®
TITLE:       Investment Adviser Rep – CCO
TAGS:   S&P 500, Stagflation, Debt Ceiling, Jobs

The route of the NASDAQ picked up steam last week. What does this mean for broad markets?


Markets rebounded strongly on Monday, led by the Nasdaq that was so sorely bruised last week. The Nasdaq rose 3.01% while the S&P 500 added 2.38% on the decidedly bullish day. Leading the way were financials, technology, and industrials.


The day started in the red. The sell trend continued to pick up steam additional losses persisted. This happened as interest rates continued their march higher.


The reflation/inflation trade gathered steam on Wednesday as markets sold off strong. The S&P 500 lost 1.32% and the NASDAQ fell 2.7%. The tech sell-off strengthens as yields rise. The rise could also pose a concern for the feverish housing market as mortgage rates rise.


The day started very mundane and in the green. That faded quickly after Federal Reserve Board (FRB) Chair Powell spoke. He said they will not raise rates any time soon, however, no potential solutions for current rate issues were given. Markets dove and interest rates rose on the lack of guidance from the FRB. Investors at this time seem to be betting against the FRB’s statements which is a dangerous stance to take. The assumption is that inflation will be meaningful enough that the FRB will react sooner than they want.


Markets started the day in the green only to fade quickly to be down as much as 1.2% for the S&P 500. Mid-morning however everything (and I mean everything) came surging back. The mid-morning low put the NASDAQ squarely in correction territory (a pull back of 10% or more). It had fallen nearly 12% from its high in February. The NASDAQ ended up more that 1.5% while the S&P 500 led the way, up almost 2%.


The S&P 500 rose 0.81% on the week. This was its first positive week in the last three. Recent market weakness should be indicative of a correction rather than a prolonged downturn for several reasons. Manufacturing and services are both in expansionary territory. Jobs are growing at a pace quicker than expected. Vaccinations are moving ahead of schedule. The FRB is remaining very accommodative. Additional stimulus is coming sooner than later. All the turmoil has been in fear that growth is going to be TOO strong, TOO fast, causing inflation. The fear being that it will cause corporations to miss elevated growth expectations on a higher debt burden. That said, the route of the NASDAQ is occurring on positive economic expectations, which should help lead the markets higher.

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