With an economy that is growing and expected to increase it’s rate of expansion as vaccines are distributed and more parts of the economy come online, one would expect stocks, which are looking at the future to rise. However, the last few weeks have been difficult in the stock market. Let’s look at last’s weeks summary from Jason Thomas, Chief Investment Officer of Savos Investments, one of the Portfolio Strategists we utilize for client account.
Markets summary: The S&P 500 Index was down for the third week in a row before rallying 2% in the last few hours of trading to turn in a small gain for the week; the Nasdaq Composite was negative. Bonds are also generally down for the year, except corporate and muni high yield. Dividend stocks (DJ U.S. Select Dividend Index) are a rare bright spot, up over four percent this week.
The prospect of higher rates caused concern in the market. In an interview on Thursday, Fed Chair Jerome Powell acknowledged that the outlook for the economy has brightened recently but reiterated that the Fed is still a long way from fulfilling its dual mandate of growth and price stability. He called recent bond market moves “notable” and said that they “caught [his] attention,” but emphasized that the Fed focuses on a broader range of financial conditions. As in previous speeches, he stressed that the Fed will pursue a broad and inclusive interpretation of its maximum employment mandate.
Equity markets, particularly last year’s highfliers, sold off sharply on Thursday in response to the comments. At the close on Thursday, the S&P 500 was down 1.3% for the day, led by Info Tech (-2.3%), Consumer Discretionary (-2.0%) and Materials (-2.0%).
The most interesting thing I saw over the week: It is rare to see a mature company making bold strategic decisions. As an act of desperation, sure. But to decide, from a position of strength, on a radically different future is unusual. In late January, General Motors (GM) made headlines by declaring its intention to offer only zero emissions vehicles by 20351. GM is investing billions in the U.S. in manufacturing plant upgrades and new plants, including a huge new battery plan in Ohio. Don’t buy the common narrative about the lack of innovation at large companies and the death of U.S. manufacturing.