March 15 to 19, 2021
What happened last week
Equity markets hit record highs while oil prices plunged
Though ongoing COVID-19 vaccinations and U.S Federal Reserve (The Fed) positivity on the country’s economic direction gave reason for optimism, uncertainty still crept into the marketplace with oil prices tumbling late in the week and inflation fears flaring up again.
Investor confidence in a U.S. economic recovery drove activity on Monday. Like the week prior, enthusiasm revolved around the increasing number COVID-19 vaccinations and the anticipated economic spike from the US$1.9 trillion economic relief bill. The S&P 500 and the Dow Jones Industrial Average both hit new record highs (the fourth straight record close for the Dow), while Canada’s TSX hovered close to a new record and finished the day up by 103 points. The Nasdaq reached its highest close in two weeks, recouping some of its recent losses from cooling tech stocks.
Markets struggled to maintain the momentum on Tuesday with the Dow, S&P and TSX all snapping win streaks. At a sector level, declining oil prices put pressure on the TSX, as energy stocks fell by 3%. The S&P saw similar declines with energy and industrial stocks weighing on the index. The Nasdaq was up again, but only by the slightest of margins (0.09%). U.S. retail sales data may have factored into the day’s activity – February data showed a 3% drop after a 7.6% gain in January – but investors were more concerned with updates from The Fed’s two-day monetary policy meeting.
The Fed held its key interest rate near zero and reaffirmed its 2023 target
On Wednesday, The Fed’s policymakers agreed to hold its key overnight interest rate at a target range of zero to 0.25%. The U.S. central bank pledged to maintain this range until 2023. It also affirmed its plan to continue purchasing US$120 billion in bonds monthly until it sees proof of “substantial further progress” on its employment and inflation goals. The Fed did revise its Gross Domestic Product (GDP) growth forecast to 6.5% for 2021, up from the 4.2% it projected in December. The bank also now expects the unemployment rate to fall to 4.5% this year, down from the 5% forecast in December.
The Fed’s update and commitment to stay the course helped markets rebound on Wednesday with the Dow and the TSX both hitting intraday and closing highs. The Dow crossed the 33,000-point mark for the first time ever, and at a record pace, taking just five days to climb 1,000 points. The TSX briefly crossed 19,000 points before settling at 18,983.10. The S&P also hit new intraday and closing highs, while the Nasdaq edged out another small gain.
The rally wouldn’t last, as the markets returned some of the week’s gains on Thursday after reports that France’s prime minister had imposed a month-long lockdown on Paris amid rising COVID-19 concerns. Contributing to the volatility, the yield on U.S. 10-year Treasuries climbed to 1.75%, a 14-month high, following a revised forecast from The Fed that inflation will rise to 2.4% this year, up from the 1.8% projected in December. The Fed stated it expects this bump in inflation to be short-lived.
Oil suffers steepest decline in six months
Oil prices plunged approximately 7% on Thursday with Bloomberg pointing to vaccination roadblocks around the world as a contributing factor. The slow vaccine rollout strikes directly at oil prices, as demand dwindles while communities remain in lockdown. West Texas Intermediate dropped US$4.60 to settle at US$60 per barrel, the largest one-day percentage loss (7.1%) since Sept. 8, 2020. Brent crude declined by US$4.72, or 6.9%, to finish at US$63.28 a barrel.
The stock and bond market*
|Dow Jones Industrial Avg.
|S&P 500 Index
|10-yr GoC Yield
|10-yr U.S. Treasury Yield
|WTI Crude Oil (US$/bbl)
|Bank of Canada Prime Rate 2.45%
*Weekly performance ending March 19, 2021. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.
Bank of Canada speech: On Tuesday, Toni Gravelle, Deputy Governor of the Bank of Canada will speak to the CFA Society Toronto on the central bank’s role in responding to market-wide stress.
Circle these dates
- April 2: North American markets closed for Good Friday
- April 30: 2020 income tax filing deadline
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