The Bottom Line
● The rapid rise in bond yields is really making equity markets uneasy. As shown in the Market Snapshot table to the lower right, global equity markets were red for the final week of February, dropping around ‐2% to ‐5%.
● Theyieldonthe10‐year U.S. Treasury spiked to 1.61%late in the day on Thursday before pulling back to close the week at 1.40%. Still, that was a 7 basis point rise over the week, its fourth consecutive week of higher levels.
● Growing inflation concerns are behind some of the rise in yields, but an improving economy is contributing as well. Economic data was heavy this week, and on balance it was either improving or ahead of expectations.
Rising yields make markets skittish
Gamestop made another unexpected spike this week but the real story was the surge in the 10‐year U.S. Treasury (UST) yield.Theyieldonthe10‐year UST spiked all the way to 1.61% late on Thursday, spooking markets, particularly Growth and Technology stocks. The Nasdaq Composite had its biggest one‐day drop since October on Thursday falling ‐3.5%. It bounced back a little bit on Friday as rates eased back from the Thursday highs, but it still lost nearly ‐5% for the week. The S&P 500 fared better, but was still down ‐2.5%in volatile trading that saw the Cboe Volatility Index (VIX) rise above 30 at some points on Thursday and Friday before finishing the week just under 28. Though many are concerned about the threat inflation may be playing in pushing yields up, a big component of the rise can be attributed to positive economic data and progress with vaccines. In fact, the Personal Consumption Expenditures (PCE) index, the Fed’s preferred measure of inflation, was only up a modest +0.3%. But most economic data was positive and beat expectations. Durable goods orders rose much more than expected, personal Income & spending surged, and home prices and new home sales were strong.
Digits & Did You Knows
START RIGHT AWAY – A child born in February 1999 (22 years ago) who started college in the fall of 2017 will graduate from the average 4‐year public in‐state college in May 2021. If the parents had begun investing $146 per month at the child’s 1999 birth and earned an annualized+8% on all invested dollars, they would have been able to pay for the 4‐year college expenses of $86,320 – for tuition, fees, room and board (source: College Board, BTN Research).
BY AGE – As of 2/19, 81% of U.S. pandemic deaths were age 65 or older and just 1% of deaths were under age 35. 49% of Americans ages 65‐74 have received at least 1 vaccine dose, and 63% of those 75+ have (source: CDC, BTN Research).
Source: Bloomberg. Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange‐traded funds recommended by the Prime Capital Investment Advisors. The performance of those funds may be substantially different than the performance of the broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High‐YieldBond(iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 ValueETF);MidGrowth(iSharesRussell Mid‐CapGrowthETF);MidValue (iSharesRussell Mid‐Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares U.S. Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by: 30% U.S. Bonds, 5% International Bonds, 5% High Yield Bonds, 10% Large Growth, 10% Large Value, 4% Mid Growth, 4%Mid Value, 2% Small Growth, 2% Small Value, 18% International Stock, 7% Emerging Markets, 3% Real Estate.
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