Global Market Commentary – March 2021

| April 02, 2021

Markets Mostly Up in March

Global equity markets were generally up for the month of March, but like February, it was an uneven ride. For the month of March:

The DJIA was up 6.6%;
The S&P 500 was also up 6.6%;
NASDAQ was up 0.4%; and
The Russell 2000 was down 2.4%.

Interestingly, the DJIA’s 6+ percentage-point outperformance relative to NASDAQ represented the biggest monthly spread between the two indices since February 2002, according to Dow Jones Market Data.

It is especially notable that the DJIA, which has existed for almost 125 years, has outpaced NASDAQ by this much in a month only 19 other times since the NASDAQ index was launched. And that was 1971.

The themes that drove the markets in March were no different from the themes that drove the markets in February, January and toward the end of 2020: mostly positive economic data, a stimulus package (this time it wasn’t just talk, however) and distribution of COVID vaccines.

Volatility, as measured by the VIX, trended down throughout the month, beginning around 23 and consistently moving south to end the month at 18.

West Texas Intermediate crude spiked at the beginning of the month, jumping $6/barrel to a high of $66, but mid-month it slid the other way and ended mostly where it started, right around $60/barrel.

Market Performance Around the World

Investors looking outside our borders performed very well, as all 35 developed markets tracked by MSCI were positive for the month of March, as they were in February. And of the 35 positive MSCI indices, the MSCI Euro led the way with a gain of 3.77% for the month. Interestingly, of the 40 developing markets tracked by MSCI, 28 of those were positive in March too.

Sector Performance Was Positive in March

For the month of March, sector performance was positive, but there were some big ranges in the returns not seen in some time. The good news is that of the 11 S&P 500 sectors, all of them ended the month green.

The better news (maybe) was that a few of the harder-hit sectors turned in very robust monthly performance, especially the Utilities sector (up over 10%) and the Materials sector (up over 7%). But in what appears to be a sector rotation of sorts, the best performing sector was Utilities (+10.13%) whereas the worst performer was Information Technology (+1.64%). And that’s a very big difference.

Here are the sector returns for the month of March as well as February (two very short time-periods):

Reviewing the sector returns for just the month of March, which again is a very short time period, we saw that:
• All 11 sectors were painted green for the month of March.
• The Energy sector was once again positive for the month, helped by rising oil prices and by expectations of a shift in energy policies from the Biden administration.
• More than half of the S&P 500 sectors were up more than 5% on the month and that’s impressive.

GDP Up Over 4%

On Thursday, March 25th, the Bureau of Economic Analysis announced that Real Gross Domestic Product increased at an annual rate of 4.3% in the last quarter of 2020. This is after an increase of 33.4% in the third quarter of last year, which should be viewed from the context of how much GDP declined in the middle of 2020 during the worst of the shutdowns due to COVID.

Further, the BEA announced that:
• Current-dollar GDP increased 6.3 percent at an annual rate, or $324.4 billion, in the fourth quarter to a level of $21.49 trillion
• In the third quarter, GDP increased 38.3 percent, or $1.65 trillion
• The price index for gross domestic purchases increased 1.7 percent in the fourth quarter, compared with an increase of 3.3 percent in the third quarter
• The PCE price index increased 1.5 percent, compared with an increase of 3.7 percent
• Excluding food and energy prices, the PCE price index increased 1.3 percent, compared with an increase of 3.4 percent
• Real gross domestic income increased 15.7 percent in the fourth quarter, compared with an increase of 24.1 percent in the third quarter
• The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 9.9 percent in the fourth quarter, compared with an increase of 28.7 percent in the third quarter
• Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) decreased $31.4 billion in the fourth quarter, in contrast to an increase of $499.6 billion in the third quarter

Housing Market Declines

Late in the month, the National Association of Realtors reported that for the month of February, Existing Home Sales dropped 6.6% from January after two months of gains. The good news (if you are selling) is that sales are still 9.1% higher than last year and that existing-home prices are significantly higher than a year ago – even surpassing pre-pandemic levels.

Other highlights from the NAR include:
• The median existing-home price for all housing types in February was $313,000, up 15.8% from February 2020 ($270,400), as prices rose in every region.
• February's national price jump marks 108 straight months of year-over-year gains.
• As of the end of February, housing inventory remained at a record-low of 1.03 million units, down by 29.5% year-over-year – a record decline.
• Properties typically remained on the market for 20 days in February, down from both 21 days in January and from 36 days in February 2020.
• Seventy-four percent of the homes sold in February 2021 were on the market for less than a month.

But First Time Home Buyers Declining

According to the NAR, home affordability is weakening and this is unlikely to change given tight inventories. Further, if inventory remains tight, affordability will decline further if mortgage rates trend higher. And according to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage was 2.81% in February, up from 2.74% in January.

To underscore the fact that affordability was weakening, the NAR reported that:
• First-time buyers were responsible for 31% of sales in February, down from 33% in January and from 32% in February 2020.
• Individual investors or second-home buyers, who account for many cash sales, purchased 17% of homes in February, up from 15% in January and equal to the percentage from February 2020.
• All-cash sales accounted for 22% of transactions in February, up from both 19% in January and from 20% in February 2020.

Prices Up Everywhere Year-Over-Year

While Existing Home Sales dropped in 3 of the 4 regions, all regions saw significant increases in median prices:
• Existing-home sales in the Northeast fell 11.5%, but the median price was $356,000, up 20.5% from February 2020.
• Sales in the Midwest dropped 14.4%, but the median price was $231,800, a 14.2% climb from February 2020.
• Sales in the South decreased 6.1%, but the median price was $271,200, a 13.6% increase from a year ago.
• Sales in the West rose 4.6% and the median price was $493,300, up 20.6% from February 2020.

Durable Goods Orders Drop

The U.S. Census Bureau announces the February advance report on durable goods manufacturers’ shipments, inventories, and orders. Here are the highlights:

New Orders
• New orders for manufactured durable goods in February decreased $2.9 billion or 1.1 percent to $254.0 billion
• This decrease, down following nine consecutive monthly increases, followed a 3.5 percent January increase

Shipments
• Shipments of manufactured durable goods in February, following five consecutive monthly increases, decreased $9.1 billion or 3.5 percent to $250.9 billion
• This followed a 1.7 percent January increase

Unfilled Orders
• Unfilled orders for manufactured durable goods in February, up two consecutive months, increased $8.4 billion or 0.8 percent to $1,082.0 billion
• This followed a 0.2 percent January increase

Inventories
• Inventories of manufactured durable goods in February, up following two consecutive monthly decreases, increased $2.8 billion or 0.7 percent to $427.3 billion
• This followed a 0.3 percent January decrease

Hoping for a Good April Run?

MarketWatch notes that the month of April has more often than not been a good month, with stocks posting positive numbers in 14 of the last 15 years. Further, April has been the best month for stocks over the past 20 years and the second-best month for stocks since 1950. And that’s no April Fools.

Sources: nar.realtor; bea.gov; census.gov; marketwatch.com; cboe.com; factset.com; msci.com; fidelity.com; nasdaq.com; wsj.com; morningstar.com