The S&P 500 Increased 0.8% In This Volatile Trading Week. The Dow Jones Industrial Average Outperformed With A 1.8% Gain, While The Nasdaq Composite (-2.1%) And Russell 2000 (-0.4%) Continued To Cool Off From Overheated Conditions. Higher Interest Rates Were Blamed For The Underperformance Of The Nasdaq, Which Fell 2.1%.
The energy sector (+10.1%) climbed 10%, buoyed by higher oil prices ($66.09, +4.64, +7.6%), and the financials (+4.3%) and industrials (+3.1%) sectors followed suit with solid gains. The consumer discretionary (-2.8%), information technology (-1.4%), and real estate (-1.4%) sectors were the lone holdouts.
The week started as well as anyone could have anticipated. Each of the major indices rallied at least 2.0% after the FDA authorized Johnson & Johnson's (JNJ) COVID-19 vaccine for emergency use, the House passed the $1.9 trillion stimulus bill (handing it over to the Senate), manufacturing PMIs for February out of the U.S., Europe, and Japan exceeded expectations, and Warren Buffett reminded investors to "never bet against America" in his annual shareholder letter.
Risk sentiment was further supported by new expectations from the Biden administration to have vaccines available for every adult by the end of May, versus prior guidance of July.
Investors, however, sold into strength as long-term rates resumed their recent ascent. From the week's intraday high to the week's intraday low, the S&P 500 was down about 5%, and the Nasdaq was down about 9%. The 10-yr yield briefly matched last week's intraday high of 1.61% before settling at 1.55%, or nine basis points higher from last week.
The spike in rates was catalyzed by persistent expectations for economic growth and inflation, an acknowledgement from Fed Chair Powell that the Fed will not intervene in the Treasury market right now to control longer-dated yields, and by stronger-than-expected jobs growth in February.
Nonfarm payrolls increased by 379,000 (Briefing.com consensus 200,000), and nonfarm private payrolls increased by 465,000 (Briefing.com consensus 195,000). Both followed strong upwards revisions for January.
Selling into strength eventually gave way to the classic buy-the-dip mindset at the end of the week, especially when considering that the underlying stock moves were far steeper than the index declines. This rebound helped the S&P 500 close positive for the week and above its 50-day moving average (3822).