Stocks Higher for a 4th Consecutive Quarter

March 31, 2021

Both January and February began with nice rallies and it was the same in March.  On the first day of the month the S&P 500 jumped more than 2%, its best one-day performance in 9 months.  Rising interest rates have been weighing on technology stocks and that continued for most of the month.  Technology stocks had led the market off the pandemic low so profit taking over concerns about rising rates was concentrated in that sector.  COVID cases moved lower for most of the month as the pace of vaccinations accelerated dramatically.  Interest rates continued to move to levels not seen since the pandemic began and nearly double where they were at the end of 2020.  We expect to see interest rates rise as the economy rebounds, but we need the pace of the increase to slow.  The S&P 500 ended the month with a gain of 4.3% and is now 5.8% higher for the year.  Technology stocks lagged, gaining just .4% in March and now showing a gain of 2.8% for 2021.  The oil ETF led the way with a 31% gain for Q1 and the banking ETF was 17% higher. 

The first week of March started with a strong rally, but that rally faded as interest rates rose and technology stocks saw profit taking.  The government reported a better than expected 379,000 new jobs were created in February which helped the S&P 500 end the week with a gain of .8%.  At one point the technology index was down 5% for the week and ended the week with a 2% loss.  The second week was the best week of the month with all the major indices rebounding.  Increasing vaccinations and reopening news help the Dow Industrial average hit a new all-time high every day of the week.  Interest rates continued to edge higher but excitement about reopening the economy took center stage driving the S&P 500 to a gain of 2.6%.  Even technology stocks joined the rally with a 3.1% gain for the week.  Daylight savings time, a non-event for most Arizonans, meant the market opened and closed an hour earlier this week.  A disappointing February retail sales report was dismissed as being old news and interest rates continued to edge higher.  The Fed said they don’t expect to raise rates through 2023, which left us wondering how they could possibly know that at this point.  At the end of the week the S&P 500 had lost .8%.  The last full week of the month was the first week of Spring and the S&P 500 celebrated by springing higher.  This week was also the one-year anniversary of the pandemic market bottom that was followed by a 78% rally, the best since 1936.  We did see the first uptick in COVID cases since January, but optimism about the vaccination pace helped the S&P 500 gain 1.6%. We ended the month with news that consumer confidence is the highest since the pandemic began. 

April is traditionally one of the better months of the year for stocks as money flows into retirement accounts ahead of the tax filing deadline.  With the deadline being moved to May 17^th we may see more money come in May than in April.  We believe the market is going to continue to be driven by COVID news and interest rates.  If the increased vaccinations start to show a decline in cases, we expect the market to respond favorably.  However, if cases continue to rise, in the face of increased vaccinations, the market could struggle.  We continue to believe the economy is in recovery and the pace will be accelerating as we move through the year.  Interest rates are likely to move higher, but we need to see the pace of the increase slow.  For months we have been buying the dips and we continue to think that is the best approach. 

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