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Rising Rates May Be Bullish For Stocks | Daily Market Update

Monday, March 8, 2021

Top Story

Rising rates are usually bullish for stocks. Historically, the S&P 500 Index has advanced during extended rising rate periods almost 80% of the time and there are some positive signs that stocks may tolerate the current rising rate environment well. The S&P 500 has tended to perform better in rising rate environments when:

  • The starting point for rising rates is low, as it was this time.
  • We are not in an extended period of high inflation, which we are well clear of.
  • Rising rates are accompanied by strong yield curve steepening, which is what we’ve been seeing.

For more discussion of the market signals supporting the potential for stock gains in the current rising rate environment, see this week’s Weekly Market Commentary, available at 1 p.m. ET.

Daily Insights

US stocks open lower with the Nasdaq continuing to underperform

  • European stocks are mostly higher in midday trading with Germany’s DAX Index outperforming amid plans to increase the pace of the nation’s vaccination program.
  • Asian stocks were firmly lower overnight as the technology route weighs heavy on markets.

Senate passes $1.9 trillion stimulus package

  • The US House of Representatives is scheduled to vote on the US Senate’s version of the stimulus package on Tuesday before the bill is sent to President Joe Biden.
  • The legislation includes extension of unemployment insurance, $1400 direct stimulus payments, as well as aid to state and local governments.
  • A total fiscal stimulus as a percent of gross domestic product (GDP) in response to the pandemic has now exceeded 20%, well ahead of the 2008-2009 response of just below 5%.
  • Roughly $2 trillion in fiscal stimulus impacted 2020, and now $3 trillion is expected to flow through the system in 2021.
  • $700 billion is expected to be delivered to consumers over the next five months when the savings rate is already over 20%—more than triple the typical rate.

Technical update

  • A 1.9% gain for the S&P 500 Index on Friday pushed the index into positive for last week; however, tech stocks are leading markets lower again in early trading today.
  • The Nasdaq Composite is testing its 100-day moving average (12,629), an indicator it has held above since early May 2020. The 200-day moving average sits about 6% lower at 11,618.

Week ahead

The following events are scheduled for this week:

COVID-19 news

The United States reported 46,000 new COVID-19 cases, down 10% week over week as data should now be past any disruptions related to the winter storm (source: Johns Hopkins).

  • Scrutiny will be placed on states that have announced a full reopening, though new case growth in these states continues to decline.
  • Cases in Western Europe have been climbing, though at a slower pace than seen in November; United Kingdom cases continue to plummet since the national lockdown.
  • Cases and fatalities are soaring in Brazil as the country tries to grapple with the outbreak of the P1 variant, a different strain than the B117 variant.

Yield spike spooks stock investors

In this week’s Market Signals podcast and video, LPL Research discusses soaring yields last week and examines the recent record-breaking earnings season, plus updates from the Federal Reserve.

 

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data are from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

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