A look ahead: Third quarter 2021 outlook
Read now for Thrivent Asset Management's view on some key factors influencing the economy and markets in the coming months for the third quarter of 2021.
MARCH 2021 MARKET UPDATE
Thrivent Asset Management Contributors to this report: Mark Simenstad, CFA, Chief Investment Strategist; Steve Lowe, CFA, Vice President, Mutual Funds-Fixed Income; John Groton, Jr., CFA, Director of Administration and Materials & Energy Research; Matthew Finn, CFA, Head of Equity Mutual Funds; and Jeff Branstad, CFA, Senior Investment Product Manager
Bond yields took a big leap in recent weeks over inflation concerns, with the yield on 10-year U.S. Treasuries moving up from 1.09% at the end of January to 1.46% at the February close. Rising bond rates in the past have sometimes had an adverse effect on stocks. The more attractive bonds become, as their yields rise, the more likely it is that money will begin flowing out of stocks and into bonds.
Personal income jumped 10% in January as the economy began to regain its footing, according to a report issued February 26 by the Bureau of Economic Analysis. Disposable personal income increased by 11.2%. By contrast, personal income had declined slightly over the previous four months. Much of the increase in personal income was attributed to COVID-19 stimulus payments and an increase in unemployment compensation.
Personal consumption expenditures (PCE) increased 2.4% in January – the largest increase in nine months – following a 0.4% decline in December. The increase in spending was widespread across all categories, led by recreational goods and vehicles, and food and beverages. The PCE Price Index rose 0.3% for the month and was up 1.5% from a year ago – the largest increase in nearly a year – reflecting a mild inflationary trend.
The S&P 500 Index was up 2.61% in February, from 3,714.24 at the January close to 3811.15 at the end of February. The total return for the S&P 500 (including dividends) was 2.76%. (The S&P 500 is a market-cap-weighted index that represents the average performance of a group of 500 large capitalization stocks.) The NASDAQ Index was up 0.93% in February, from 13,070.69 at the January close to 13,192.35 at the end of February. (The NASDAQ – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.)
Retail sales grew by 5.3% in January over December sales (adjusted for seasonal variation) – and 7.4% above January 2020 sales, according to the Department of Commerce retail report issued February 17. That jump in sales followed a 1.0% decline in December.
Leading the growth in sales were nonstore retailers (primarily online), which were up 11.0% for the month and 28.7% from January 2020, furniture and home furnishing stores, up 12.0% for the month and 11.7% from a year earlier, and electronics and appliance stores, up 14.7% for the month but down 3.5% from January 2020. Also reporting strong growth were the sporting goods, hobby, musical instrument, and book store category, up 8.0% for the month and 22.5% from a year earlier, and building supplies, up 4.6% for the month and 19.0% from a year earlier. Food services and drinking establishment sales grew 6.9% for the month, as more bars and restaurants reopened, but sales were still down 16.6% from a year earlier.
U.S. employers added 379,000 new jobs in February, but the unemployment rate was little changed for the month, edging down from 6.3% to 6.2%, according to the Department of Labor Employment Situation Report issued March 5. Most of the job gains came in the leisure and hospitality industry, with many bars and restaurants reopening as pandemic-related restrictions were eased in some parts of the country.
About 13.3 million people reported that they were unable to work – or worked fewer hours – in February because their employer closed the business or reduced their business due to the pandemic. That was down from 14.8 million in January.
The average hourly earnings for all employees on private nonfarm payrolls increased by $0.07 in February to $30.01 per hour.
Weekly unemployment claims continued to decline gradually, with about 800,000 Americans per week filing new unemployment claims during February – down about 20,000 claims per week from the previous four-week average. By contrast, during the first several weeks of the pandemic in 2020, workers filed more than 5 million claims per week.
Energy stocks rebounded in February, with a 22.66% return for the month for the S&P 500 Energy sector, as global oil consumption continued to rebound. Other leaders included Financials, up 11.49%, Industrials, up 6.89%, and Communication Services, up 6.18%. The biggest losers for the month were Utilities, down 6.12%, and Health Care, down 2.11%.
The chart below shows the results of the 11 sectors for the past month and year-to-date:
After dropping to record lows in 2020, the yield on 10-year U.S. Treasuries increased for the third straight month in February on inflation concerns. The yield jumped from 1.08% at the January close to 1.46% at the end of February.
Oil prices moved up in February for the fourth straight month, as global travel continued to pick up. The price of West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing, rose 17.82% for the month, from $52.20 at the January close to $61.50 at the end of February.
International equities moved up in February, as the MSCI EAFE Index rose 2.11% for the month, from 2,124.05 the January close to 2168.87 at the end of December. (The MSCI EAFE tracks developed-economy stocks in Europe, Asia and Australia).
All information and representations herein are as of 03/05/2021, unless otherwise noted.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management, LLC associates. Actual investment decisions made by Thrivent Asset Management, LLC will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.
Any indexes shown are unmanaged and do not reflect the typical costs of investing. Investors cannot invest directly in an index.
Past performance is not necessarily indicative of future results.