By Scotia Wealth Management - The Zukiwsky Group

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MARKET WATCH: March 5, 2021

Mar 5, 2021 | 9:56 AM

Big Picture

Tech Stocks Volatile as Concerns Persist Over Rising Yields, Inflation

It was a strong start to the week as the S&P 500 surged Monday in its strongest single-day rally since June. All 11 S&P 500 sectors rallied, led by financials and tech. By Monday’s close, the S&P was up 91 points, the Dow jumped 603 and the Nasdaq added nearly 400. In Canada, the TSX also registered strong, broad-based gains, adding 240 points. U.S. stocks fell Tuesday, as investors once again retreated from high-flying technology names as concerns over rising bond yields and inflation re-emerged, even though bond yields retreated slightly on Tuesday. The Nasdaq shed 230 points, while the Dow and S&P registered smaller losses. In Canada, the TSX bucked the trend, adding 122 points, supported by rising gold prices.

It was another rough day for the Nasdaq Wednesday as investors sold off technology names in favour of cyclicals. The technology-heavy Nasdaq plunged 361 points; the TSX dropped 101, also on technology weakness; while the S&P fell 121. The fear among many investors is that rising interest rates and the spectre of stimulus-induced inflation could disproportionately hurt the future earnings and valuations of high-growth technology names.

The technology selloff intensified Thursday and Treasury yields rose above 1.54%, despite Fed Chair Powell’s pledge to keep interest rates low. The Nasdaq lost 274 points — nearly finishing in correction territory – while the Dow and S&P surrendered 346 and 51, respectively. Meanwhile, the TSX closed down 195 points, although rising crude prices helped temper Thursday’s overall losses.

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U.S. Markets Lose Ground, TSX Slightly Up

For the four trading days covered in this report, the Dow lost 8 points to close at 30,924, the S&P 500 shed 43 points to settle at 3,768, while the tech-heavy Nasdaq plunged 469 points to close at 12,723. In Canada, the TSX bucked the trend, gaining 65 points to end at 18,125.

Strategy

The U.S. labour market’s recovery continued in February

Non-farm payrolls increased by 370,000 after an upwardly revised 166,000 gain in January and ahead of consensus estimates predicting a 200,000 increase. The unemployment rate ticked lower to 6.1% as the participation rate remained steady at 61.4%.

The leisure and hospitality sectors, which were the hardest-hit by the pandemic, gained 355,000 jobs accounting for most of the increase. Government employment declined the most reflecting cutbacks in state and local education followed by construction, while other sectors had modest gains.

Total hours worked dropped 0.5% month-over-month, and the prior month’s reading was revised lower to 0.7%. Overall, there were nearly 10 million unemployed Americans in February, almost double its pre-pandemic level. Over 40% of the unemployed have been out of work for 27 weeks or more, up 125,000 from January at 4.1 million. While the report is undoubtedly positive, there is softness in the details, including the lack of breadth and decline in total hours worked.

We believe the Federal Reserve is likely to look through the short-term narrative, focusing on its medium-term outlook that shows broad improvement over the course of the year.

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