The Markets in March

First Quarter of 2021

As we closed out 2020, the overwhelming sentiment was that it couldn’t get much worse. But it’s been more mixed, and in the first quarter we’ve seen the emergence of virus mutations, uneven although faster-than-expected distribution of COVID-19 vaccines, and a relaxation of pandemic-related restrictions that had both positive and negative impacts. Stocks continued to push higher in March. Several of the benchmark indexes posted gains including the Dow (6.6%), the S&P 500 (4.2%), and the Global Dow (4.0%). The Russell 2000 (0.9%) and the Nasdaq (0.4%) advanced slightly. Treasury yields and the dollar advanced, while crude oil prices and gold fell.

Overall, the first quarter was definitely eventful. Additional federal stimulus payments helped many; a group of amateur traders banded together through social media to drive shares of GameStop to astronomical heights; interest rates jumped, stoking fears that inflationary pressures were rapidly building; and equities ultimately enjoyed robust returns. The small caps of the Russell 2000 gained nearly 12.5%, the Global Dow climbed 9.4% and the large caps of the Dow (7.8%) and the S&P 500 (5.8%) posted solid gains. Tech shares, which had driven the market for much of 2020, slumped during the quarter, but still gained enough ground to push the Nasdaq up by almost 3.0%. Energy shares posted some of the biggest gains in the quarter, with that market sector surging over 30.6%. Financials jumped 18.0%, followed by industrials (12.0%), materials (10.8%), and real estate (10.0%). Only information technology failed to advance by the end of the quarter. The yield on 10-year Treasuries climbed more than 80 basis points. Crude oil prices increased and the dollar rose. Gold prices fell nearly 10.0% in the first quarter. Year to date, the Russell 2000 is well ahead of its 2020 year-end closing value, followed by the Global Dow, the Dow, the S&P 500, and the Nasdaq.

The price of crude oil closed at $59.32 per barrel on March 31, lower than the February 26 price of $61.50 per barrel but well above the December 31 price of $48.52. The national average price of retail regular gasoline was $2.852 per gallon on March 29, up from the February 22 price of $2.633 and 27.0% higher than the December 28 selling price of $2.243. The price of gold finished March at $1,708.40 per ounce, lower than the February 26 price of $1,728.10 per ounce and significantly below its December 31 closing value of $1,893.10 per ounce.

Economic News

Unemployment: Claims for unemployment insurance continued to drop. According to the latest weekly totals, as of March 13, there were 3,870,000 workers receiving unemployment insurance benefits, down from the February 20 total of 4,419,000. The insured unemployment rate fell 0.4 percentage point to 2.7%. During the week ended March 6, Extended Benefits were available in 16 states (18 states during the week of February 6); 51 states and territories reported 7,735,491 continued weekly claims for Pandemic Unemployment Assistance benefits (7,518,951 in February), and 51 states and territories reported 5,551,215 continued claims for Pandemic Emergency Unemployment Compensation benefits (5,065,890 in February).

FOMC/interest rates: The Federal Open Market Committee met in March. According to the Committee statement, employment has turned up recently and, despite investor concerns, inflation continues to run well below 2.0%. The Committee continues to hold interest rates at their current 0.00%-0.25% target range and expects no change through 2023.

GDP/budget: The gross domestic product grew at an annual rate of 4.3% in 4Q2020. The GDP increased 33.4% in 3Q after contracting 31.4% in t2Q. Consumer spending, as measured by personal consumption expenditures, increased 2.2% in 4Q after surging 41.0% in 3Q. Nonresidential (business) fixed investment climbed 13.1% following a 22.9% increase in 3Q; residential fixed investment continued to advance, increasing 36.6% after soaring 63.0% in the prior quarter. Exports advanced 22.3% (59.6% in the third quarter), and imports (which are a negative in the calculation of GDP) increased 29.8% (93.1% in the third quarter). Federal non-defense government expenditures decreased 8.9%  following a third-quarter decline of 18.3% as federal stimulus payments and aid lessened. The GDP fell 3.5% in 2020 after increasing 2.2% in 2019.

Consumer confidence: The Conference Board Consumer Confidence Index® surged in March to its highest reading in a year. The index stands at 109.7, up from 90.4 in February. The Present Situation Index, based on consumers’ assessment of current business and labor market conditions, increased from February’s 89.6 to 110.0 in March. The Expectations Index, based on consumers’ short-term outlook for income, business, and labor market conditions, rose from 90.9 in February to 109.6 in March.

The Month Ahead

The economy in general, and the stock market in particular, is likely to continue to progress as more vaccines are distributed and more jobs are made available. Investors will continue to watch for signs of escalating inflation, despite the Federal Reserve’s projections that it will maintain interest rates at their present levels through 2023.

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