- Vaccine distribution is moving forward with some 66 million doses being administered. Investors praised the addition of a third vaccine from Johnson & Johnson.
- Energy stocks led all sectors for the second consecutive month with oil prices rose above $60/barrel.
- Long-dated Treasury yields spiked in February on inflation fears, weighing on bond returns.
The vaccine rollout has been steadily moving forward, with the addition of a Johnson & Johnson vaccine to the mix. According to the Center for Disease Control, as of February 24th, over 66 million total COVID-19 vaccine doses have been administered. This pushed stocks to all-time highs in February as expectations for a sustained economic recovery remain strong. Although there were some bouts of volatility during the month, the S&P500 gained 2.76% while the small cap Russell 2000 advanced 6.23%. Value stocks (which lagged the broader market significantly in 2020) were the strongest gainers. The Russell 1000 Value posted a 6.04% gain while the Russell 1000 Growth lost 0.02%. Energy (+22.66%) was the best performing sector as oil and natural gas prices rose. Financials (+11.49%) and industrials (+6.89%) were also top performers for February and among the worst hit during the selloff last year.
Treasury yields spiked in February as the yield on the 10-Year topped 1.51%. Rates moved higher on optimism about the US economy via vaccine distribution but also on future inflation worries. Loose monetary policy and a massive fiscal package could lead to higher prices as the economy improves. Bond investors despise inflation and require additional compensation if they anticipate lower purchasing power when they are repaid. The Barclays US Aggregate Bond Index dropped 1.44%, marking its second worst monthly return in the past 5 years. Treasuries (-1.81%) were hit the hardest, while corporates (-0.81%), asset-backed securities (-0.14%) and high yield +0.37% held up best.
International markets were up in February, with the MSCI EAFE index advancing 2.24%. Emerging markets posted a 0.76% gain with losses in Latin America (-2.99%) and China (-1.04%). US investors with international holdings may see attractive relative returns if the global economy expands and the US Dollar continues to decline.
The US economy remains fragile but is showing signs of strength. Unemployment is still relatively high at 6.3% according to the BLS. The pent-up demand in travel and leisure services should help those industries as more of Americans get vaccinated and willing to travel through the spring and summer. Investors should be mindful that this is more of a restart of the economy from a forced shutdown than a recovery from a traditional recession.