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Market snaps back to record highs, Dow Jones Industrial Average rises 4.1% – March 12, 2021

March 12, 2021

The Dow Jones Industrial Average set intraday record highs every day this week, ultimately rising 4.1% and closing at a record high. The Russell 2000 (+7.3%) and S&P 500 (+2.6%) set new highs for the first time in a month while the Nasdaq Composite (+3.1%) dug itself out of correction territory with a 3% gain.

Every sector in the S&P 500 contributed to the weekly advance, with some investors fearful of getting left behind in the rally effort. The consumer discretionary (+5.7%), real estate (+5.7%), materials (+4.4%), utilities (+4.4%), industrials (+3.6%), and financials (+3.2%) sectors outperformed the benchmark index. The communication services sector (+0.7%) trailed with a modest gain.

The advance was supported by a confluence of factors, including the following:

  • A buy-the-dip mindset in the heavily-weighted growth stocks, including Tesla (TSLA), which rose 16%.
  • President Biden signing the $1.9 trillion stimulus bill and directing all states to make all adults eligible to be vaccinated no later than May 1.
  • The ECB saying it expects to conduct asset purchases at a significantly higher pace over the next quarter than during the first months of this year.
  • Weekly initial claims decreasing by 42,000 to 712,000 ( consensus 725,000) for its lowest level since the first week of last November.
  • No surprising headline inflation readings out of the Consumer Price Index and Producer Price Index reports for February.
  • Good-enough 3-yr note, 10-yr note, and 30-y bond reopening auctions.
  • New York Governor Cuomo saying that restaurants in New York City and New Jersey will expand indoor dining to 50% beginning March 19.

The news flow supported the reopening optimism and inflation expectations, sending the 10-yr Treasury note yield up another nine basis points to 1.64% by week’s end — its highest level since last February. Growth stocks trimmed their weekly gains with this upwards move.

Interestingly, at the beginning of the week, widely-followed money manager David Tepper told CNBC that the 10-yr yield is likely at, or near, the top of a new range due to the higher yields attracting foreign buyers. This was when the 10-yr yield was trading at 1.61%, so investors will continue to watch the 10-yr yield over the next few weeks for any uncomfortable swings.

The CBOE Volatility Index dropped 16.1% to 20.69, as investors reduced their hedging exposure amid the bullish price action in the market.

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S&P 500 Index is an unmanaged group of securities considered to be representative of the stock market in general. NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market. The Dow Jones Industrial Average is a popular indicator of the stock market based on the average closing prices of 30 active U.S. stocks representative of the overall economy. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. It is not possible to invest directly in an index.

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