Equities came under pressure this week as the anticipated stimulus pop failed to materialize. The S&P 500 was down 2.1% on the week, but there was significant dispersion with many popular stocks down much more. Traders that jumped into recent winners were stung as the small cap value stocks dropped 8.7% on the week. Solar, electric vehicle and concept stocks continue to face serious selling pressure. Utilities and consumer staples were up more than 1% and helped support the indices, although they remain under-owned in many mutual funds.

The 10-year Treasury yield rose after the Federal Reserve (Fed) meeting, but then fell 12 basis points to end lower on the week. This helped the Bloomberg Barclays Aggregate Bond Index post a weekly gain. Energy made the headlines with a 10% drop over four days, the largest move over this span in six months. Increasing inventories and lockdowns in Europe were to blame, but it is likely fast money made a quick exit as well. Red-hot copper prices have softened of late and gold prices are down more than 8% year-to-date. Chinese equities, especially popular technology names that trade in the U.S., have come under pressure as relations between the two countries faced scrutiny this week. A recent summit was viewed adversely, and the U.S. sanctioned several Chinese officials.

Despite the softness in some re-opening stocks as well as energy, manufacturing data continues to be robust. The Philadelphia Fed Business Outlook came in well above expectations for its March reading. It was the topmost reading since 1973 with the prices paid component reaching its highest level since 1980. It is against this backdrop the Fed remains committed to not raising rates until at least 2023 based on their latest guidance. The bond market started the year expecting the first federal funds hike to come in 36 months, but this has fallen to 20 months due in part to robust economic data.

So far data shows stimulus check money is not flowing into the market as surveys had indicated. The retail call option on open interest has tailed off as it appears money is being diverted into the real economy. On top of this, taxes will be due for all the new retail traders in the coming weeks. Whether these factors cause a sizeable correction remains to be seen as exchange-traded equity fund flows continue to be quite steady.

Source: BTC Capital Management, Bloomberg LP, Ibbotson Associates, FactSet, Refinitiv.
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