Broker Check

March Market Insights

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Hello,

I hope all is well and that you and your family are safe and healthy!

In my last few economic commentaries I mentioned the possibility of an impending correction, especially in the technology sector where gains were most significant in 2020. I have also reemphasized in my recent messages that corrections are natural components of nearly every market cycle. In February, we began to see a correction across the large cap growth and technology sector. The catalyst was an unexpected surge in interest rates, leading too many to believe that inflation will rise throughout the year. Gasoline and food prices have risen sharply in 2021 due to the expected reopening of the economy. When 2021 began, the 10-year U.S. treasury was at .93%. Since then, it has climbed an astonishing 74.19% closing at 1.62% as of March 15th, 2021 [1]. The speed and scope of this increase has been unprecedented, driven by factors such as the sizable stimulus injections and increased optimism towards a sooner than expected return to normalcy in consumer spending. This surge drastically impacted growth and technology stocks as well as the bond markets. Higher rates mean that borrowing costs and operations become more expensive for growth companies. The Nasdaq dropped nearly 13% from its all-time high of 14,175.12 on February 16th, 2021 to a low of 12,397.05 on March 5th, 2021 [2].  Growth and technology stocks across all market capitalizations were negatively impacted. Apple, for example, went from an all-time high of $145.09 on January 25th, 2021 to as low as $116.21 on March 8th, 2021, a decline of 20% [3].  Another high-flying stock from 2020, Tesla, went from its all-time high of $900.40 on January 25th, 2021 to as low as $539.49 on March 5th, 2021, a decline of 40% [4].  Similarly, as rates rose, bond prices declined, consistent with their inverse relationship to interest rates. The Bloomberg Barclays U.S. Aggregate Total Bond Index is down 3.3% year to date as of March 15th, 2021 [5].   It is important to note that this correction was narrow and shallow and thus did not resemble the broader “Covid Correction” of 2020 whatsoever. While market turbulence remains as painful as ever, the importance of diversification and the adherence to a long-term plan was reinforced in 2020’s sell off and I expect the same here in 2021. As for this most recent correction, in my opinion, the normalization of rates is actually a very good thing longer term and tells me our economy is healing faster than expected. That being said, if rates continue to climb at this pace, pressure will continue for both large cap growth stocks, bonds, and perhaps other asset classes.

Like other market corrections, the recent drop in tech stocks will attract investors with cash on the sidelines who have been awaiting more attractive valuations. The Fed, on March 17th, 2021 masterfully reiterated their support for the economy and their commitment to doing whatever it takes to get unemployment back to pre-Covid levels. Jerome Powell has been clear that they want to keep the Fed funds rate at or near zero at least into 2023 and possibly longer depending on how the economy recovers.  [6] The Government also recently approved a $1.9 trillion stimulus package which will help segments of the population that have been impacted by the virus. In my opinion, the worst of this short-lived technology sell off is behind us. There seems to be an underlying current of pressure on companies to produce results in short periods of time. I believe it is important to remember that true success for many companies will happen over time. Amazon, which was founded on July 5th, took years to become the e-commerce juggernaut it is today! I hope one day that the majority of the public and Wall Street can once again look at the market through a longer-term lens rather than on a day by day and month by month basis. I continue to and always will believe in the innovation, heart, and determination of our society!

Thank you for the opportunity to serve you. My priority remains and always will be to ensure that you continue to receive high quality guidance and a client service experience second to none. While I continue to reach out via phone and e-mail, please know that I am available via Zoom, Facetime, any other digital technology you prefer and in person if you would like to meet. I am happy to meet with you at any one of my 3 offices or at your home or near your home, whatever you prefer and whatever you are most comfortable with. Please contact me anytime with any questions, clarifications, or concerns.

Wishing you, your family, friends, colleagues and community continued hope, health and positivity in the coming weeks, months and beyond!  

Thanks!

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