What kept US market investors busy in the week?

The global markets were mixed in the week, with most of the major markets closing with gains as macroeconomic data indicating recovery, and progress on the vaccine rollout supported investor sentiment. However, rising global yields, soaring crude oil prices and expectations of inflation capped gains.

United States

Rising Yields on top of investor’s minds: The 10-year US Treasury yields soared to a on-year high on Friday. Bond Yields are on the rise due to fears of rising inflation in the United States. Markets expect that the sizeable proposed additional fiscal stimulus to the tune of $1.9 trillion and the vaccine roll-out led economic rebound would fuel consumption (thereby inflation).

Impact on stocks: The rise in rates again weighed on growth stocks by increasing the discount on future earnings, while value stocks outperformed in the week. Within the S&P 500 Index, energy shares outperformed as oil prices rose to one-year high. Technology shares were broadly weak, while consumer discretionary stocks continued to be dragged lower by electric vehicle maker Tesla.

Jobs data indicates recovery: After three consecutive days on losses, US stocks rebounded on Friday on the back of positive jobs data indicating healing in the economy. The U.S. economy added 379,000 jobs in the month of February, the best payroll growth since last October.  The US economy created more jobs than expected in as new COVID-19 cases fell and additional pandemic relief money from the government boosted hiring. 

US Fed’s commentary disappoints: The US markets were disappointed on Thursday, after Jerome Powell’s comments did not point to changes in the Fed's asset purchases to tackle the recent jump in yields. Powell’s comments failed to alleviate fears that the central bank is reacting too slowly to the recent rise in inflation expectations and long-term Treasury yields. Investors wanted the Fed to increase purchases of long-term bonds, helping push down long-term interest rates. 

Oil prices continue to soar: Oil prices continued to rise after OPEC and its allies agreed to not increase supply in the upcoming month of April, as they await a more solid recovery in demand from the coronavirus pandemic. The prices have now hit a one-year high.

Outlook going forward

• The data on Friday showing US employment rising more than expected in February offered further evidence of a rebounding economy. 
• Higher yields can weigh even more on tech and growth stocks with higher valuations, as they threaten to erode the value of their longer-term cash flows.
• However, rising 10-year bond yields pose a major concern, as equities will get discounted at a higher rate. Investors are awaiting the March 16-17 Federal Reserve meeting, after comments from Fed Chair Jerome Powell gave little indication that the central bank was concerned by the recent yield rally. 
• Action by US Fed, OPEC countries and the movements in 10-year yields will be closely tracked by investors in the upcoming weeks.