The View at Two – 22 March 2021

Market Madness… The NCAA College Basketball tourney is in full-on “madness” mode, with a few heart (wallet) breaking upsets already on record. But, the markets are also suffering some upsets of its own. Having tread water overnight, the US cash market open sparked a major rotation into big-tech (growth) and out of value (Small Caps), as rising COVID cases dampened some of the reopening enthusiasm (looking at you, NJ). The modest drop in Treasury yields (10Y down a few bps) apparently triggered the resurgence, erasing Small Caps recent outperformance, while the Nasdaq surged 1.5%. The Dow is faring slightly better than small caps, up 30bps, but cyclicals like Boeing (-1.2%), Goldman (-1.5%)  and JPM (-2.5%) are holding the blue chip index to modest gains. The S&P is 0.85% higher, but its sector split is a good indication of the day’s progress. Most of the sectors are higher, but the leaders are the big gun mega-cap tech names with XLK Tech Select in the lead (AMAT +5.3%, KLAC +4.4%), followed by Communication Services and Consumer Discretionary. Financials and Energy are at the bottom. Kansas City Southern (+12%) is the biggest S&P gainer after it agreed to be bought by Canadian Pacific. In terms of data, existing home sales rebounded in January, but were expected to slide in February as interest rates rose, and they did, dramatically. Against expectations of a 3.0% decline, existing home sales plunged 6.6% MoM in February (January's +0.6% rise was also revised down to a 0.2% rise). So it seems from this weekly data that the housing market remains red-hot, but the higher mortgage rates, which remain ultra-low by historical measures, have already started dialing down the heat. The bond market will remain in focus this week amid a bevvy of auctions and moves by The Fed to let the bank capital exemption lapse. At this point, it feels almost mechanical - sell this thing, buy the other, reverse, do it again...and again...and again...