Monthly Market Update:
Recap of February 2021
It is hard to believe we are heading into March of 2021.
If this is your first time tuning in, I’m Eric Powell with RightPlan Financial and our young professional division, The Future Mill. As we depart from February and take a look back, the markets have begun to shift a bit. Oil prices have increased and the financial sector has had a solid month while bonds hit the brakes a bit at the end of February with rising bond yield concerns. Let’s take a look at all of this and more in our monthly market update.
Changing it up a bit, let’s first discuss the more of the details and I’ll wrap up with the performance of major indices we monitor.
For starters, if you have been watching the news, you’ve probably seen the discussion of bond yields rising. When you hear bond yields, it is easiest to think of their yield like an interest rate. This yield is loosely determined based on the fed fund rate. So, let’s say you bought a bond for $1000 and the yield was 2%, which would pay you $200 on the bond for each year you own the bond. Then, while you owned the bond at a 2% yield, the feds lowered the rate and the bond only paid .25%. Your bond of 2% is then in demand and people are willing to pay more for your bond since it has a higher yield than what is being offered. So, when rates are going lower, long term bond prices usually rise.
Now what we are seeing is just the opposite. Let’s say you bought the bond at .25% yield and the fed raises fed fund rate. Then new bonds are issued at let’s just say 1%. Now your bond is in less demand, driving the price of bonds down because people want to buy the new bond with that has a higher return.
To recap this, a bond usually goes down when interest rates rise and a bond goes up when interest rates fall.
While bonds have been a hot topic for discussion with rate concerns, stocks have also been trying to find their footing. Since companies borrow money and like low interest rates, it makes sense that the market gets leery when there is talk of rising interest rates.
With all of the concern of rising rates, Fed Chairman Powell did provide some relief to investors by sharing they did not plan to raise rates in the near future.
The reason the rates will eventually rise is due to inflation. Raising rates is one of the major ways the feds combat inflation. When the fed does this, it is basically like tapping the brakes on an economy that may be “too good”. When it comes to rates, yields and all the moving parts, it does get a bit technical, though it should not be a primary focus because you should always have a long-term view for investing.
Oh and for any dooms dayers that may be watching and thinking cash may be the answer, as the economy does recover and inflation does rise, cash in the bank will lose value, making your money worth less, not worthless, just worth less. The markets will dip and dive, but they have historically been a strong choice to both grow your money and combat the silent money killer known as inflation.
As we enter March, we are expecting to see another stimulus package pushed through and all eyes are on companies reporting their 4th quarter of 2020 earnings. The earnings reports are a driving factor for stocks because a rebounding economy is what many have banked on and why we have seen such growth in the overall market.
For client portfolios, we are continuing to monitor the market and making sure portfolios continue to be diversified as some sectors are taking steps back and others are performing better.
For February, the S&P 500 index was +2.76%, Dow Jones Index was +3.43%, Nasdaq Composite +1.01%, MSCI EAFE +2.24%, MSCI Emerging Markets +.76%, Barclays US Aggregate Bond -1.44%, Barclays US Corporate High Yield +.03% and Barclays Municipal +.03%
If you have made it this far, please remember to reach out if you have any questions. Thank you for taking the time to watch.