MRM Commentary


Monthly Investment Commentary

March 2021

      Markets Rebound in February

          After a weak January, equity markets rebounded in February, despite some late-month volatility driven by a spike in U.S. interest rates. The S&P 500 gained 2.76 percent in February, while the Dow Jones Industrial Average increased by 3.43 percent. The heavily technology-weighted Nasdaq Composite gained 1.01 percent. These positive results coincided with improving fundamentals during the month. According to Bloomberg Intelligence, as of February 26 with 96 percent of companies having reported, the average fourth-quarter earnings growth rate for the S&P 500 stands at 5.8 percent. This is much better than analyst estimates.

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      MRM Portfolio

      Technical factors also remained supportive in February. Despite the month-end volatility, all three major indices spent the entire month well above their respective 200-day moving averages for the eighth month in a row, indicating continued healthy levels of investor support for markets. The 200-day moving average is an important technical signal, as prolonged breaks above or below this line can indicate shifting investor sentiment for an index.

      The story was similar internationally. The MSCI EAFE Index rebounded from a volatile January, gaining a solid 2.24 percent in February. The MSCI Emerging Markets Index gained 0.77 percent. Both major international indices saw month-end volatility that offset gains from earlier in the month. Fixed income markets had a challenging February, driven by the rise in long-term interest rates. The 10-year U.S. Treasury yield rose from 1.09 percent at the start of the month to 1.44 percent at month-end. This growth in rates was partially due to rising inflation.

      Public Health Outlook Improves
      The news on the public health front in February was quite positive. The U.S. made solid advances in bringing the pandemic under control, and mass vaccination efforts continued to pick up steam. The number of new cases per day dropped by roughly half throughout the month, and we are now at levels last seen in October. We saw improvement in the number of hospitalized patients and the positive test rate as well. There were some signs toward month-end that the pace of improvement may have begun to slow, but the progress made in February was more than welcome. One factor in this improved public health picture was the increase in vaccinations.

      Economic Recovery Accelerates
      The market and public health progress came amid steadily improving economic data. Consumer confidence and spending reports were especially encouraging. Retail sales and personal spending surged in January, driven by the improving public health situation and the federal stimulus checks. Both measures of consumer spending saw their best month of growth since last June, when the lifting of initial lockdowns and the first round of stimulus helped spur a swift rebound.

      MRM'S VIEW

      While there are reasons to be hopeful for faster growth and continued market appreciation, risks remain. On the public health front, we still face the risk of more contagious strains of the coronavirus. We have not seen a noted increase in infections on a national level, but this is a risk that should be watched, especially in the short term, as we continue to ramp up vaccination efforts across the country. On the economic front, while momentum is good, unemployment is still very high. The economy appears to be positioned to weather the pandemic over the next few months—once we go beyond that, though, the risks rise. For now we remain bullish.

      Source: Commonwealth

      MRM model holdings as of December 31, 2020



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