A runup in interest rates cooled a rally in global stocks this month. The MSCI All-Country World Index (ACWI) hit an all-time high on February 16 and was up over 6.60% mid-month, only to finish February with a more modest 2.32% gain. Inflation worries heightened, though, in expectation of an economic rebound to coincide with a global COVID-19 vaccination rollout. Just as markets closed for the month, Johnson & Johnson received emergency use authorization approval for its single-shot vaccine — a major milestone that added optimism to the global macroeconomic environment.
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Source: Bloomberg Pricing Data, as of February 28, 2021
U.S. Treasury yields have been surging, with 10-year yields finishing February at 1.41% — higher than before the pandemic hit. Global bond markets were spooked, with the U.S. Aggregate Bond Index and International Bond Index selling off 1.44% and 1.86% for the month respectively. Interestingly, the U.S. high-yield bond market held firm with a 0.06% gain, as the interest rate increase — adversely affecting bond prices — was offset by growing demand for higher-yielding risky assets.
The CBOE/S&P Volatility Index (aka the VIX), a gauge of market stress, dropped below its neutral level of 20 on February 12, coinciding with the early-month equity rally, but then rose to finish February at 27.95 after the interest-rate shock. The simultaneous selloff in stocks and bonds might indicate that the COVID-19 recovery hasn’t quite taken hold, and that investors remain anxious about the effect of increasing interest rates on global assets.
U.S. small-cap stocks posted their fifth positive month, gaining 6.14% in February to bring year-to-date returns to 11.45%. The large-cap S&P 500 Index was up 2.61% for February, bringing large caps into the black at 1.47% so far in 2021 — but the tech-heavy Nasdaq 100 slipped 0.12% last month and is relatively flat for 2021 with a 0.16% YTD return. As large-cap tech and defensive stocks remain in the back seat, the highly anticipated rotation into U.S. value shares appears to be gathering speed: The Russell 3000 Value index gained 6.07% in February compared with the Russell 3000 Growth index, up a mere 0.12%.
Gold fell 6.15% in February in its worst monthly loss since 2016. It was unusual to see the shiny metal sell off while whispers of inflation were sweeping across the markets — especially because the diversified Bloomberg Commodity Index gained 6.47% for the same period. For the year, gold is down 8.66% while commodities are up 9.27%.
Finally, no global asset market commentary is complete without acknowledging Bitcoin, which piled on a 31.84% gain in February to bring YTD returns to 57.51%. (That’s after a 2020 return of 305%.) The world’s largest cryptocurrency finished the month at 45,248, after hitting a new all-time high of 57,355 on February 21.
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Data Source: Bloomberg Pricing Data, as of February 28, 2021.
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