Equities Start March Off with a Bang…..

U.S. stocks started the week and month of March on a high note by closing higher. This comes after last week’s tumble, most noticeably in the technology sector as a rise in Treasury yields applied pressure to more growth-oriented sectors. Much of the day’s rise may be attributed to the continued optimism of a robust second-half 2021 economic recovery. The optimism was further supported by more positive vaccine news, as Dow member Johnson & Johnson received FDA Emergency Use Authorization for its single-shot COVID-19 vaccine. On the economic front, strong global manufacturing reports helped the markets and were headlined by the highest level for the ISM Manufacturing Index since early 2018. Treasuries were mixed, but the rise in bond yields at the long end of the curve, that hampered stocks last week continued to persist. The U.S. dollar continued to rebound, while crude oil prices were lower and gold declined. Asia moved broadly higher to begin the week, while Europe also closed higher and saw widespread gains, aided by strong manufacturing data.

The Dow Jones Industrial Average gained 603 points (2.0%) to 31,536, the S&P 500 Index rose 91 points (2.4%) to 3,902, while the Nasdaq Composite was up 396 points (3.0%) at 13,589. In heavy volume, 1.1 billion shares were traded on the NYSE and 5.0 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.86 to $60.64 per barrel. Elsewhere, the Bloomberg gold spot price tumbled $10.15 to $1,723.89 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—gained 0.2% to 91.06.

Treasuries mixed and U.S. dollar extend gains, February manufacturing data strong…..

Treasuries were mixed, with the long end again seeing pressure and the U.S. dollar gained ground following last week’s sharp surge in yields that unnerved the markets, as the rate on the 2-year note lost 1 basis point (basis point) to 0.12%, while the yield on the 10-year note gained 2 bps to 1.42% and the 30-year bond rate rose 5 bps to 2.20%.

The February Institute for Supply Management (ISM) Manufacturing Index showed manufacturing growth (a reading above 50) accelerated more than anticipated. The index rose to 60.8 from January’s unrevised 58.7 level, and versus the Bloomberg consensus estimate of 58.9. This index hit the highest level since early 2018 as new orders, production, employment and backlog of orders all grew at faster paces. However, inflation pressures accelerated with prices rising 3.9 points to 86.0, indicating continued supplier pricing power and scarcity of supply chain goods.

The ISM said, “The manufacturing economy continued its recovery in February. Survey Committee members reported that their companies and suppliers continue to operate in reconfigured factories. Issues with absenteeism, short-term shutdowns to sanitize facilities, and difficulties in hiring workers remain challenges and continue to cause strains that limit manufacturing-growth potential.” However, the report noted that optimistic panel sentiment increased, with five positive comments for every cautious comment, compared to a 3-to-1 ratio in January.

The final February Markit U.S. Manufacturing PMI Index was unexpectedly revised higher to 58.6 from the preliminary level of 58.5, where it was forecasted to remain, but below January’s record high of 59.2. A reading above 50 denotes expansion. The report noted although the rate of overall growth eased, it was the second-fastest since April 2010 and was supported by sharp increases in output and new orders. Also, unprecedented supply chain disruption remained apparent, however, with supplier shortages and transportation delays leading to a substantial rise in input costs. Finally, firms were able to partially pass on input prices to clients through the fastest increase in charges since July 2008.

Construction spending rose 1.7% month-over-month (m/m) in January, versus projections of a 0.8% gain, and following December’s upwardly revised 1.1% increase. Residential spending rose 2.5% m/m and non-residential spending increased 0.9%.

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