Stocks gyrated wildly last week as short-term bond yields rose and tech stocks took it on the chin. Investors feared higher interest rates would be met with a firm hand from the Fed. However, Fed Chairman, Jerome Powell reiterated his intention to keep easy-money policies in place. Investors were still concerned as to what the central bank might do to try and stem the recent rise in Treasury yields. This prompted rates to rise even further.

Much of the rise in interest rates is due to the U.S. economy’s strong recovery. Jobs are increasing and unemployment levels continue to drop. Manufacturing is a strong driver of economic activity. For the last six months, manufacturing data has continued to grow. The one challenge factories face is a shortage of raw materials and parts. The global pandemic caught many corporations off guard as they expected the economic slowdown to persist well into 2021. That wasn’t the case as we began to see signs of recovery during the summer months. Still, fourth quarter 2020 earnings rose a strong 3.9%.

In light of last weeks’ volatility, I thought I’d review a few key points to keep in mind.

Pullbacks can be healthy for markets, especially following the huge gains we’ve seen. According to Fidelity Investments, since 1920 the S&P 500 has, on average, experienced a 5% pullback three times a year, and a 10% correction once every 12-16 months. Keep this in mind if we continue to see pullbacks in the major indices. The most important thing to remember is, we view pullbacks differently when the market is in an overall uptrend as opposed to things progressively going down over time.

We are seeing weakness in our short-term indicators. This is normal whenever the market begins to pull back. However, our long-term indicators are still positive. There is nothing within our sights that says economic growth is stagnating or declining. If we do, you’ll read about it here.

If you have any questions, please contact me.