Weekly Snapshot March 1st, 2021
Market Review: Week Ending 2/26/2021
The continued sharp rise in U.S. Treasury yields stressed the markets for a second week, with equities falling into negative territory for the week. The Dow Jones Industrial Average (DJIA) was down 1.78% for the week. The S&P500 Index (S&P500) fell 2.45%, the Russell 2000 Index (R2000) off 2.90%, and the NASDAQ Composite (NASDAQ) falling the most at 4.92%.1 The surge in U.S. Treasury yield accelerated the pro-cyclical rotation in the equity markets. The leading S&P500 sectors for the week were Energy +4.33%, Financial (0.36%), and Industrial (0.50%) versus the underperforming Utilities (5.05%), Consumer Discretionary (4.90%), and Technology (3.95%) sectors.2
Given previous stimulus packages, strong economic growth continues. Real Personal Income for January jumped 10% from the previous month, boosting the personal savings rate to 20.5%.3 Rising income and savings rates should lead to future strong consumer demand and subsequent economic growth. Weekly jobless claims also hit the lowest level (730,000) in three months and the biggest decline since last August.
Federal Reserve Chairman Powell’s semiannual testimony to Congress stressed no change in the accommodative policy of the Federal Reserve due to labor market concerns. He believes higher yields in the market represent a confidence vote on the economy and inflation pressures are not troubling and just transitory. However, some economists and investors were disappointed that Chairman Powell did not try to talk down or push back on the rising yields.
As of Friday, 96% of S&P500 companies reported their quarterly earnings delivering over 4% year-over-year earnings growth – significantly better than the negative growth forecasted at the end of the 2020.4.
Of note is Crude Oil’s close above $61 per barrel – up 26.9% year-to-date – the fifth weekly climb for this commodity and the highest since 2019.5
WHAT WE WILL BE WATCHING THIS WEEK
- The Democratically controlled House approved the $1.9 trillion COVID relief package this week. The package now moves to the Senate, where its passage “as is” is in question.
- U.S. Bureau of Labor Statistics on Jobs and Unemployment – Is there any improvement in employment?
- Manufacturing PMIs and ISMs – Does the economic rebound continue?
STOCKS IN THE NEWS
- Home Depot’s (held in Fundamentum GIE) earnings beat expectations, as consumers poured more money into home improvement due to the pandemic and strength of the real estate markets. In addition, the company announced that its board approved a 10% increase in its quarterly dividend to $1.65 per share. However, shares traded down because no consumer spending outlook was provided by management.
- T.J. Maxx, the apparel and home fashions retailer, reported $0.50 EPS for the quarter, missing the consensus estimate of $0.62 by $0.12. Shares fell as TJX said about 690 stores were temporarily closed due to government mandates and that it expected European stores to be shuttered for two-thirds of the current quarter.
- Toll Brothers, the U.S. luxury homebuilder, beat on earnings and revenue, with signed contracts up 26%. Toll Brothers Q1 EPS of $0.76 beat estimates by $0.30. In addition, home backlog value was $7.47B at first quarter-end, up 37% compared to FY 2020’s first quarter.
As always, we appreciate your confidence in our team.
Fundamentum Investment Committee
John Nichol, CFA® – Chief Investment Officer
Trevor Forbes – Investment Committee
Robert Armagno – Investment Committee
Matt Dunn, CFA® – Chief Compliance Officer
Sources:
1 FactSet – 2/26/2021
2 FactSet – 2/26/2021
3 Charles Schwab – 2/26/2021
4 FactSet – 2/26/2021
5 John Hancock Investments – 2/26/2021
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