What did the market do? Usually, that’s a pretty easy question to answer, even for network television anchors used to parroting whatever is on the teleprompter. But it proved to be a challenge this past week, as Academy Securities strategist Peter Tchir puckishly pointed out, with the major averages going their separate ways on several days.
Their usual lodestar, the
Dow Jones Industrial Average,
wound up with a gain of 1.8% for the week. But the
the site of much of the action, lost 2.1%. And the
the benchmark for most professional and knowledgeable individual investors, wound up with a fractional loss of 0.8%. Those showings improved considerably late in the week, with all three moving up strongly in tandem to end Friday on a high note.
The disparity reflected the huge swings in some big-name hypergrowth favorites that had outsize impacts on the Nasdaq and a number of hot exchange-traded funds. Exhibit A:
(ticker: (TSLA)), which shed 11.5% on the week. The electric-vehicle maker’s shares figure especially prominently in the
ETF (ARKK), the supersuccessful offering from Cathie Wood, profiled here, which fell 10.2% on the week.
The conundrum for ARK Innovation, Tchir points out in a client note, is that most of the $23 billion fund’s investors are recent arrivals who bought near peak prices. Will these return-chasers stick around or dump their ARKK shares with “paper hands,” in the parlance of the Reddit crowd?
The impact also was apparent in
iShares MSCI USA Momentum Factor
(MTUM), which, too, has Tesla as its biggest component. The fund was off 4.7% on the week. The name iShares Momentum clearly suggests that the ETF is designed to surf the market’s big waves. However, the Tesla effect also was visible in a sector that suggests relatively low volatility: convertible securities. These hybrids of bonds and stocks aim to deliver equity-like returns, along with the steadying effect of fixed-income securities.
But the hot growth companies have found the convertible market an attractive venue in which to raise capital, as our colleague Andrew Bary reported recently. That has made Tesla one of the biggest names in that market and the top holding of the
SPDR Bloomberg Barclays Convertible Securities
ETF (CWB), which was down 4.0% for the week.
As to whether the hot stocks in the ARK Innovation ETF have fallen enough to become buys, Tchir avers that some might have, but that he doesn’t have confidence that full capitulation has been reached for all of them. That said, the short positions betting against the highfliers should be smaller by now.
Part of the indexes’ divergent performance could be traced to a revival in petroleum stocks. The
Energy Select Sector SPDR
(XLE) popped nearly 10% after the Organization of the Petroleum Exporting Countries and other oil exporters, led by Russia, surprised the market by maintaining their previously announced production cuts. That sent crude futures over $66 a barrel, a nearly two-year high. However, energy hasn’t had a big weight in the broad indexes since disco’s heyday, when a cardigan-wearing Jimmy Carter was imploring us to turn down our thermostats.
Helping the market to end the week strongly was a better-than-expected employment report released on Friday morning. The headlines showed a 379,000 rise in nonfarm payrolls in February, nearly double economists’ forecasts, while revisions in the two previous months’ tallies added a net 38,000 positions. The good news was that private payrolls jumped by 465,000 in the latest month, with 355,000 leisure and hospitality jobs (recouping part of the overall 523,000 plunge in the two preceding months, when Covid-19 cases had spiked).
This good news was, for a change, treated as good news by the stock market, and didn’t spook bonds too much (although the 10-year Treasury yield initially bounced on Friday to 1.60%, around the high reached during the volatility of a week ago Thursday).
Read more Up and Down Wall Street: Will the Fed Cap Bond Yields? Not With Stocks Still Near Peaks.
But beneath the headline numbers, David Rosenberg, head of Rosenberg Research, found some disquieting data. In particular, while more people were on payrolls, they were working shorter hours. The average workweek shrank to 34.6 hours in February from 34.9 the previous month. The net impact is the equivalent of a plunge in payrolls of one million in terms of total labor input, he notes.
That might ultimately be bullish for investors, if not for workers’ pay packets. Despite strong jobs numbers, Fed policy will remain easy, while an additional $1.9 trillion in fiscal largess should be coming soon.
Write to Randall W. Forsyth at firstname.lastname@example.org