Stocks dropped amid rising long-term bond yields, with sharp declines in high-valuation growth stocks leading the overall market lower.
The Dow Jones Industrial Average slipped 1.78%, while the Standard & Poor’s 500 declined 2.45%. The Nasdaq Composite index, home to many high-valuation growth plays, fell 4.92% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, edged up 0.37%.1,2,3
Rising Rates Derail Stocks
The 10-year Treasury yield climbed last week, from 1.34% to 1.42%, sending shudders through the stock market. While investors generally understand that economic strength may lead to higher bond yields, it was the speed at which bond yields rose that proved unsettling. Generally, when yields rise, bond prices tend to fall.4
Rising yields also drove sector rotation, with economic reopening stocks (e.g., energy, financials, and industrials) outperforming stay-at-home stocks, especially many of the big technology names.
The trend of higher yields was mitigated by testimony on Tuesday and Wednesday by Fed Chair Jerome Powell. He provided some assurances that the Fed remained committed to its current easy money policy stance.5
A surge in yields on Thursday, however, sparked a new wave of anxiety and a broad retreat that left market averages lower for the week.
Powell Testimony Calms Investors
Concerns over rising long-term bond yields and inflationary pressures were eased by two days of testimony by Fed Chair Powell. Powell reiterated the Fed’s intention to stick with its near-zero short-term interest rate policy and monthly bond purchase program until the labor market fully recovers and its inflation goals are met.
This Week: Key Economic Data
Monday: Institute for Supply Management (ISM) Manufacturing Index.
This Week: Companies Reporting Earnings
Monday: Zoom Video Communications, Inc. (ZM).
“It is good to have an end to journey toward, but it is the journey that matters in the end.”
– Ursula K. Le Guin
4 Facts About Capital Gains
When you sell a capital asset like an investment or a piece of property, the sale can result in a capital gain or loss. The IRS defines a capital asset as “most property you own for personal use or own as an investment.” Here are four facts you should keep in mind:
* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov6
Finding Inner Peace Inside (and Indoors)
Practiced for thousands of years, yoga has had a revival in the last couple decades. Yoga can be an optimal exercise choice for many individuals of all ages. But before getting started with any fitness regimen, make sure to discuss any medical concerns with your healthcare provider; this information is not a substitute for medical advice.
While there are many different styles of yoga, generally speaking, yoga is a low-impact form of exercise. But in addition to the fitness benefits, it can help you learn relaxation and breathing techniques as well as how to regulate emotions and quiet your mind. It’s also a great form of exercise to do indoors, and there are thousands of free classes on YouTube So, if you’re still enduring the remnants of winter, you can practice “quieting your inner monologue, doing yoga from the comfort of your own home.
Tip adapted from Healthline.com7
A woman walking along a canal sees a boat full of people, yet there isn't a single person on board. How could this be?
Last week’s riddle: What appears once in a minute, twice in a moment, but never in a decade? Answer: The letter M.
Elephants at sunrise near Mt. Kilimanjaro, Tanzania.
Footnotes and Sources
2. The Wall Street Journal, February 26, 2021
3. The Wall Street Journal, February 26, 2021
4. U.S. Department of the Treasury, February 26, 2021
5. The Wall Street Journal, February 24, 2021
6. IRS.gov, October 14, 2020
7. Healthline.com, September 23, 2020
Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of technology and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark of the performance of major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.
U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.
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March 1, 2021 - Rising Bond Yields Diminish Stocks
March 01, 2021