Stocks React Sharply to Bonds, Inflation

By: Sean Schmid, Chief Operating Officer – Penn Investment Advisors
Weekly Update – March 9, 2021

Stocks were mixed last week as rising bond yields and heightening inflation fears sent stocks on a wild ride, capped by a remarkable Friday afternoon rally.

The Dow Jones Industrial Average gained 1.82%, while the Standard & Poor’s 500 increased by 0.81%. The Nasdaq Composite index fell 2.06% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, rose 0.76%.^1,2,3

Rising Yields Whipsaw Stocks

The week began on an ebullient note as stocks surged on a retreat in bond yields and approval of a new vaccine, with sharp gains in reopening stocks, hard-hit technology companies, and small-cap companies.

But the optimism proved fleeting as worries over rising bond yields upended the high valuation growth stocks and sent the broader market lower. Deteriorating investor sentiment culminated in a steep sell-off on Thursday, sparked by comments from Fed Chair Jerome Powell that did little to allay investors’ concerns about rising yields and festering inflation anxieties.⁴

Stock prices rallied on a strong employment report on Friday, but some of the enthusiasm was tempered by rising yields.

U.S. Dollar’s Surprising Strength

Last week, the U.S. dollar gained 0.93% against a basket of international currencies—a relatively big move in the currency market. Year-to-date the dollar has appreciated over 2%.⁵

U.S. dollar strength this year has defied the expectations of many analysts who anticipated that a global economic recovery would prompt a shift away from the safe harbor of the dollar toward non-dollar denominated assets.

However, rising U.S. yields and a faltering economic rebound in Europe have instead propelled the U.S. dollar higher, raising concerns about tight financial conditions abroad and its potential adverse impact on an emerging markets recovery.

This Week: Key Economic Data

Wednesday: Consumer Price Index (CPI).
Thursday: Jobless Claims. Job Openings and Labor Turnover Survey (JOLTS).
Friday: Consumer Sentiment.

^{Source: Econoday, March 5, 2021
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.}

This Week: Companies Reporting Earnings

Wednesday: Campbell Soup Company (CPB).
Thursday: JD.com (JD), Ulta Beauty, Inc. (ULTA), Docusign (DOCU), GoodRx Holdings (GDRX).

^{Source: Zacks, March 5, 2021
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.}

Quote of the Week

“In seed time learn, in harvest teach, in winter enjoy.”

– William Blake

Tax Tips

Rules for Home Office Deductions

If you have a business and work out of your home, the IRS allows you to deduct certain expenses on your return. Here are a few key things to keep in mind:

• The IRS requires you to use your office (or a part of your home) for “regular and exclusive use.” The part of the house should be your principal place of business, a place where you meet customers, or a separate structure dedicated to the business, like a garage or studio.
• To calculate your deduction, you can use two methods:
  • The simplified option allows you to multiply the allowable square footage of your office by $5 up to a maximum of 300 square feet.
  • The regular method allows you to specifically calculate the actual expenses like rent, mortgage interest, taxes, repairs, depreciation, and utilities you pay for the portion of your home used for the business. If you use only part of a space for your business, you’ll need to figure out the percentage devoted to business activities.

* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov⁶

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^{1. The Wall Street Journal, March 5, 2021}

^{2. The Wall Street Journal, March 5, 2021}

^{3. The Wall Street Journal, March 5, 2021}

^{4. The Wall Street Journal, March 4, 2021}

^{5. The Wall Street Journal, March 5, 2021}

^{6. IRS.gov, September 23, 2020}