E US Stock Market Weekly Review Feb. 22 – 26, 2021

A U.S. stock market correction came this week, and surging bond yields were the dominant investment theme. Fed Chair Powell said that higher yields are "a statement of confidence" about the economic recovery. Are we for sure in this economic recovery path yet?

That's why I wrote the following stock market commentary: “Consolidation is likely, and a correction too. With most of the companies have reported earnings and revenue that beat estimates, the question now is what can drive the stock market higher? Profit-taking and concerns about valuation can send stock indices and stocks lower, but what about higher?”

Rising bond yields can send a positive signal for the economy, there I totally agree with the Fed Chair. They however both indicate inflationary pressures and make bonds now more attractive to investors as relatively safer investments compared to stocks. If this trend of rising bond yields is to continue in 2021, then this asset allocation of capital invested from stocks to bonds could continue.

Warren Buffett warned that fixed-income investors “face a bleak future." I disagree, as the bond market is a huge financial market, and prospects have become much better in 2021. If this rising bond yield continues the Fed may have sooner than expected to change its loose monetary policy, another negative factor for the stock market. But on the other hand, any rising interest rates should be supportive of the U.S. dollar.

For the week ending on Friday, February 19, 2021, the major indexes ended lower, with a selloff mostly for tech stocks.

Economic News

News that the $1.9 trillion fiscal stimulus has been passed by the House and now only remains for the Senate to likely (?) pass this huge stimulus bill probably in March should provide support for stocks.

The Chicago Fed National Activity Index (CFNAI), a monthly index designed to gauge overall economic activity and related inflationary pressure, came in at 0.66, higher than the consensus of 0.4.

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Disclosure: I have no position in any stock mentioned

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