You know what they say – February is just second January… Not sure if anybody has actually said that, but it sure felt that way in the markets.
Similar to January, stocks started the month of February red hot, before cooling down to end the month. The S&P 500 was up as much as 6.3% mid-month before giving back 3.5% on the tail end of February (still closing the month modestly positive though).
The culprit behind the volatility? Rapidly rising interest rates. The 10-year Treasury bond yield jumped from 1.11% to 1.44% in February. Though higher yields can be seen as a positive sign, as they represent stronger investor sentiment, the quick increase spooked investors.
While interest rates jumped, it is important to keep things in perspective. Bond yields are still historically low compared to previous decades (looking at you 1981 – when yields peaked over 15%). It’s also important to note Fed Chair Jerome Powell said he isn’t concerned about inflation right now (another concern that has been floating around investor’s minds recently).
Just like the rough landing for markets last month, our Super Bowl prediction fell a bit flat as well. Lesson learned – don’t bet against Tom Brady…
Since breaking above 1% for the first time since March 2020, the 10-year Treasury bond yield has surged higher.
January and February marked the largest two-month relative increase for bond yields in over a decade, as yields have jumped 55% to start the year (remember, starting from a lower value means smaller increases can have a larger impact on a relative basis).
Why is this important?
The 10-year Treasury yield is used as a proxy for many financial matters – such as mortgage rates and auto loans. If yields rise too much, it can make borrowing money more expensive.
However, yields remain low on an absolute basis, and many experts predict they will remain below or around 2% by the end of 2021.
A match made in heaven.
On February 8, it was revealed Tesla had invested $1.5 billion of its $19+ billion cash reserves in bitcoin.
The company said it bought bitcoin for “more flexibility to further diversify and maximize returns on our cash.”
Tesla also announced it would explore the opportunity to start accepting payment in bitcoin “in the near future.”
In a podcast discussion, Elon Musk stated “I think bitcoin is really on the verge of getting broad acceptance by conventional finance people.”
While other companies have made sizable investments in the cryptocurrency, Tesla is the first S&P 500 company to do so.
Broad Market Returns
| Index | 1 Month | 3 Month | YTD | 1 Year |
| S&P 500 (VOO) | 2.77% | 5.53% | 1.72% | 31.01% |
| NASDAQ (QQQ) | -0.13% | 5.04% | 0.13% | 53.76% |
| Large Cap Growth (VUG) | 0.85% | 3.97% | -0.18% | 45.14% |
| Large Cap Value (VTV) | 5.00% | 7.83% | 4.17% | 21.10% |
| Small Cap Growth (VBK) | 2.99% | 13.97% | 5.23% | 53.34% |
| Small Cap Value (VBR) | 8.79% | 18.56% | 11.01% | 35.44% |
| Developed International (VEA) | 2.43% | 7.42% | 1.69% | 24.55% |
| Emerging Markets (VWO) | 1.57% | 11.03% | 4.75% | 32.41% |
| REITs (VNQ) | 3.43% | 6.29% | 3.46% | 4.86% |
| Aggregate Bonds (BND) | -1.55% | -2.25% | -2.40% | 1.40% |
| Corporate Bonds (VCIT) | -1.59% | -1.91% | -2.45% | 3.31% |
| High Yield Bonds (JNK) | 0.15% | 1.78% | -0.34% | 6.64% |
| Long Term Treasuries (VGLT) | -5.58% | -9.96% | -8.90 | -6.35% |
| International Bonds (BNDX) | -1.66% | -1.93% | -2.28% | -0.30% |
Fun Facts – March Edition
- March tends to be the worst month for workplace productivity. Coincidence that it is also National Caffeine Awareness Month…?
- The March Madness tournament is slated to begin on Thursday, March 18. While the basketball tournament is typically played on courts throughout the US, this year all games will be played in the state of Indiana to minimize travel (due to COVID).
- Don’t forget to wear green on March 17 (St. Patrick’s Day).
- On March 2, 1962, Wilt Chamberlain scored 100 points in a single NBA game.
- It was just one year ago (March 2020) when stocks markets plummeted to the fastest bear market in history
Derek Prusa, CFA, CFP® and Ben Webster, CFP®
Co-Founders and Owners of Aspire Wealth
Education Savings Options
