Bond yields at one-year despite dovish Fed, small caps stumble, oil loses traction - our top 10 stories from last week

Read the 10 stories to remember from the week which ended March 19th, 2021.  


Story #1: Stocks slip as investors maintain focus on rising bond yields
The major indexes continued to move to record highs early in the week due to a combination of fiscal and monetary policy stimulus, more retail investor support, and the better economic outlook given progress in containing the coronavirus. However, then lost ground as bond yields reached their highest levels in over a year following FOMC meeting, Energy stocks fell sharply as oil prices saw their biggest daily drop since the summer.
Story #2: Small-cap stumble
After surging more than 7% the previous week, a U.S. small-cap stock benchmark fell nearly 3%, underperforming large-cap indexes. Despite the weekly setback, the Russell 2000 remained up more than 50% over the past six months.
Story #3: Bank setback
A yearlong program that has recently governed how U.S. banks account for assets such as Treasury bonds will be allowed to expire at the end of this month. The U.S. Federal Reserve Bank’s announcement on Friday weighed on stocks of some of the largest U.S. banks, as they had pressed for an extension of the pandemic relief program.
Story #4: Calming trend
Although the U.S. stock market has recently seen some significant daily moves, a measure of investors’ expectations of short-term volatility has slipped to the lowest level in about 13 months. On Wednesday, the Cboe Volatility Index closed at 19.2—the lowest since the pandemic triggered a spike in volatility.
Story #5: Mixed data
US Macro data seems to indicate there is substantial slack seems to remain in the US economy,-Weekly jobless claims rose unexpectedly to 770,000, their highest level in a month. Industrial production fell 2.3% in February versus consensus expectations for a slight increase, while an index of homebuilder sentiment fell to a seven-month low as housing starts and permits also saw declines. Retail sales excluding the volatile auto segment slumped 2.7% in February, the biggest decline since April’s 15.2% plunge.
Story #6: Dovish Fed
The U.S. Federal Reserve upgraded its economic growth outlook as well as its inflation forecast. The Fed statement and Powell’s post-meeting press conference forcefully communicated the central bank’s dovish monetary stance, however. Policymakers affirmed that they anticipated no rate hikes until 2023, along with their confidence that any increase in inflation will prove short-lived. The committee also pledged to maintain the current pace of its asset purchases.
Story #7: Bond yield surge
Despite a dovish Fed, Inflation concerns continued to weigh on bond prices, pushing the yield of the 10-year U.S. Treasury bond above 1.70% for the first time since January 2020. At the end of last year, the yield was just 0.92%. The selling activity was also partially due to the Bank of Japan’s decision to widen the trading band around 10-year Japanese government bonds
Story #8: Shares in Europe ended little changed.
Although central banks maintained their dovish policy stance to support an economic recovery, concerns about a resurgence in coronavirus infections in some countries limited upside. In local currency terms, the pan-European STOXX Europe 600 Index ended the week roughly flat. Core eurozone bond yields ended slightly higher. Germany’s 10-year bund yield climbed midweek, tracking U.S. Treasuries in response to expectations for an uptick in inflation.
Story #9: BoE sticks to bond-buying program
The BoE’s policymakers voted unanimously to keep the benchmark interest rate at an all-time low of 0.1% and to continue its existing bond-buying program. The central bank said that global economic developments “had been a little stronger than anticipated” last month and noted that the U.S. fiscal stimulus package should provide “significant additional support.” It said bond yields had increased to reflect the stronger recovery while observing that the prices of risk assets had held up.
Story #10: Oil loses traction
The price of U.S. crude oil tumbled about 8% on Thursday—the commodity’s biggest single-day decline in about six months—before rebounding modestly on Friday back above $61 per barrel. Thursday’s decline came amid new data showing abundant global oil supplies and concerns that oil demand in Europe could falter amid a bumpy rollout for COVID-19 vaccinations there.

Source: T-Rowe Price, John Hancock, Hedgeye