Market Perspective for February 22, 2021

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), (CRM), Moderna (MRNA), Wayfair (W), Vale (VALE), American Tower (AMT) and Fluor (FLR).

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