Markets, Economy

Weekly Kickstart (03/08/2021-03/12/2021)

3/8/21 8:00 AM

iStock-626627280.jpgStocks rebounded last week, as the S&P 500 rose by 0.81 percent to 3,841.94. That left the benchmark index up 2.29 percent 2021-to-date, and just 2.36 percent below the all-time closing high. The modest week-over-week gain does not nearly capture all the wild swings seen in equities during the past few trading sessions, as major indices surged on Monday, tumbled the next three days, and then staged a major reversal on Friday. The tech-heavy NASDAQ has experienced the most volatility recently as it was at one point down 12.05 percent from the record high hit less than a month ago before a sharp bounce on Friday helped trim that deficit to just 8.34 percent. However, even at its worst the drawdown so far in the NASDAQ appears par for the course based on the price action seen in recent years, and for many market participants this has been a welcome correction that has helped take some of the froth off of valuations. None of this is intended to suggest that the selloff is necessarily over but instead view this as a reminder that corrections are a natural occurrence in the market.

y783y54785

It is also important to understand that drawdowns can be much lengthier than what we have experienced recently, but this is the “price of admission” for long-term investors. Consider the S&P 500, which in 2008 lost 37 percent (total return), the largest annual decline since the Great Depression. Since then, though, the index gained over 400 percent with only one down year during the whole 12 year horizon (including dividends). It was not always smooth sailing for equities throughout this period because there were 27 corrections since the March 2009 low of more than 5 percent, with a median duration of 26 days. Ten of these drawdowns were larger than 10 percent and three exceeded 20 percent before the index eventually rebounded and went on to hit a new all-time high. Altogether this means that as resilient as the markets have repeatedly been, if you are a long-term investor in equities, experiencing a large drawdown is not a matter of if but when. It is crucial to understand this before you begin investing and determine if you can weather such declines. This can depend on many factors such as risk tolerance, nearness to retirement, and other variables specific to your unique situation. Regularly consulting with a professional financial advisor can assist with such assessments, and as always we are here to help with any questions you may have.

543yy34545

To recap a few of the things we learned about the economy last week, the positives included that mortgage applications rose, construction spending jumped for the fourth consecutive month, gauges of U.S. manufacturing activity continued to heat up, small business credit demand remained healthy, Q4 2020 productivity was revised higher, corporate layoff announcements declined, the national rate of joblessness fell to a reopening low, and nonfarm payrolls growth greatly exceeded forecasts. As for the negatives, small business job creation moderated, and the number of Americans making first-time claims for unemployment benefits remained alarmingly high. This week the pace of economic data slows down but there are still a few important reports on employment, consumers, small business, and inflation scheduled to be released, along with a handful of Treasury auctions that market participants may be paying close attention to.

45y3y35445

What To Watch:

Monday

  • Wholesale Inventories 10:00 AM ET

Tuesday

  • NFIB Small Business Optimism Index 6:00 AM ET
  • 3-Yr Note Auction 1:00 PM ET
  • Robert Kaplan Speaks 6:05 PM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • CPI 8:30 AM ET
  • Atlanta Fed Business Inflation Expectations 10:00 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • 10-Yr Note Auction 1:00 PM ET

Thursday

  • Jobless Claims 8:30 AM ET
  • JOLTS 10:00 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • 10-Yr TIPS Announcement 11:00 AM ET
  • 20-Yr Bond Announcement 11:00 AM ET
  • 30-Yr Bond Auction 1:00 PM ET

Friday

  • PPI-Final Demand 8:30 AM ET
  • Consumer Sentiment 10:00 AM ET
  • Quarterly Services Survey 10:00 AM ET
  • Baker Hughes Rig Count 1:00 PM ET
 

 

Sources: Econoday, Bloomberg, Compound, FRBSL

Post author: Charles Couch

Disclosures