Volatility returned to the market for the end of February with losses across the board for the last week of the month. Primary concerns were focused around inflation and interest rates. Increasing inflation would serve to erode purchasing power and rising interest rates could negatively impact both stocks and bonds.
Despite better-than-expected jobless claims and durable goods orders, last Thursday suffered the greatest losses. It also appears there was some profit-taking as share prices for Alphabet (Google’s parent company), Facebook, Microsoft, and Tesla dropped during robust selling. These companies have been among the top-performing over the past several months.
Overall February was still a strong month. The Dow Jones grew by 949 points (3.17%), the S&P 500 rose 97 points (2.61%) and the NASDAQ increased by 121 points (0.93%).
Looking forward, attention will focus on the newest proposed COVID relief package. The approval of a third COVID-19 Vaccine, this one from Johnson & Johnson, continues to fuel optimism that a return to normal may be on the horizon.
With a return to normal, we may see an economic surge as pent-up demand is released. That surge may very well cause an increase to inflation and interest rates, which in turn could fuel volatility in the market. However, we believe this would be short-lived as the recovery gains traction and returns to a sustainable pace. We also anticipate a sector rotation in the market as technology stocks cool down while more traditional companies begin to recover.