By Mark DeCambre
After a frenetic February, investors are probably hoping that March holds true to its proverb: In like a lion out like a lamb.
Indeed, February turned out to be a doozy, with benchmark bond yields, represented by the 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -2.18% and the 30-year long bond /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -2.18% , ringing up their biggest monthly surges since 2016, according to Dow Jones Market Data.
The move was a stark reminder to investors that bonds, considered mundane and straight-laced by some investors, can wreak havoc on the market all the same.
A final flurry of trading, some $2.5 billion in sales near Friday’s close, created a major downside drag for stocks in the final few minutes of the session and may imply that there may be more air pockets ahead before the market steadies next week.
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.03% and S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.01% barely held above their 50-day moving averages, at 30,863.07 and 3,808.40, respectively, at Friday’s close.
“The turmoil is probably not over,” wrote Independent market analyst Stephen Todd, who runs Todd Market Forecast, in a daily note.
Yet, for all the bellyaching about yields running hotter than expected, stocks in February still managed to bang out solid returns. For the month, the Dow finished up 3.2%, the S&P 500 notched a 2.6% gain in February, while the Nasdaq eked out a 0.9% return, despite a 4.9% weekly loss put in on Friday that marked the worst weekly skid since Oct.30.
Many have made the case that a selloff in the technology-heavy Nasdaq Composite was inevitable, especially with buzzy stocks like Tesla Inc. /zigman2/quotes/203558040/composite TSLA -6.42% only getting frothier by some measures.
“But the market has been overbought and extended all year and arguably for several months in late-2020,” wrote Jeff Hirsch, editor of the Stock Trader’s Almanac, in a note dated Thursday.
“After the big run-up in the first half of February folks have been looking for an excuse to take profits,” he wrote, describing February as the weak link in what’s usually the best six-month period of gains for the stock market.
The beneficiaries of the recent move in yields so far appear to be banks, which are benefitting from a steeper yield curve as long dated Treasury yields rise, and the S&P 500 financials sector /zigman2/quotes/210599854/delayed XX:SP500.40 -0.12% /zigman2/quotes/209660484/composite XLF -0.18% finished down 0.4%, which is, as it turns out, was the second-best weekly performance of the index’s 11 sectors behind energy /zigman2/quotes/210600521/delayed XX:SP500.10 +0.43% , which surged 4.3%.
Utilities /zigman2/quotes/210600278/delayed XX:SP500.55 +0.27% were the worst performer, down 5.1% on the week and consumer discretionary /zigman2/quotes/210600228/delayed XX:SP500.25 -1.53% was second-worst, off 4.9%.
In February, energy logged a 21.5% gain as crude oil prices rose, while financials rose 11.4% on the month, booking the best and second-best monthly performances.
So what’s in store for March?
“Typical March trading comes in like a lion and out like a lamb with strength during the first few trading days followed by choppy to lower trading until mid-month when the market tends to rebound higher,” Hirsch writes.
March also sees “triple witching: occur on the third Friday, when stock options, stock-index futures and stock-index option contracts expire simultaneously.
Ultimately, seasonal trends suggest that March will be wobbly and could be used as an excuse for further selling, but on that downturn may be cathartic and give way to further gains in the spring.