Monthly wrap for March 2021: Stocks rise as investors bank on continued economic recovery, relief that US stimulus was finally approved

Date: April 1, 2021

  • The STI gained 7.3% in March, 11.3% for first quarter;
  • Investors banked on an economic recovery gaining pace;
  • US President Joe Biden’s US$1.9 trillion package played a big part;
  • Equally important was a dovish Federal Reserve;
  • Investors managed to shrug off inflation worries, rise in bond yields;
  • Singapore’s industrial production rising;
  • CapitaLand announced major restructuring.

The STI posted its best 1Q performance since 2012

The Straits Times Index gained about 216 points or 7.3% to end March at 3,165.34 in tandem with several all-time highs on Wall Street. The STI’s first quarter gain was about 322 points or 11.3%, its best first quarter performance since 2012.

Underpinning the rise were hopes that the global economy is slowly recovering from the COVID-19 pandemic and an assurance from US monetary officials that interest rates would remain depressed for the next two years.

Hopes rise that things will soon get back to normal

Recovery expectations came from two fronts – the increasing pace of vaccinations being carried out around the world, and stimulus efforts by governments, most notably the US$1.9 trillion package unveiled by the Biden administration in the US in early March.

The optimism generated by these developments – the US package had taken almost six months to approve and represented US President Joe Biden’s first major legislative win – overcame fears that arose from rising US Treasury yields that originates in fears that inflation will rise because of the vast amounts of money being handed out.

Stocks rose despite volatility in US bonds and inflation worries

Still, the US bond market did undergo a volatile March – the 10-year yield started the month climbing above 1.5%, reached a peak of just above 1.7%, backed off below this point in the third week before ending March at around 1.742%. On Tuesday it had risen to a 14-month high of 1.77%.

Adding to inflation worries – and the rise in yields – is a US$2 trillion infrastructure package unveiled on Wednesday.

For the quarter, the Dow gained 7.8%, the S&P 500 rose 5.8% and the Nasdaq increased 2.8%. For the month, the Dow added about 6.6%, the S&P 500 rose 4.2% and the Nasdaq gained just 0.4%.

Key US officials played a part

The chairman of the US Federal Open Markets Committee (FOMC) Jerome Powell and new Treasury Secretary Janet Yellen played key roles in how the market moved in March.

Early in the month Mr Powell’s comments and failure to speak about possible action to push down rising bond yields sparked off weakness in bonds that persisted for the next two weeks.

However, after the FOMC’s mid-month meeting ended, he said strong data are ahead and that Fed officials expect 6.5% US GDP growth this year from the massive federal fiscal stimulus to optimism around the success of coronavirus vaccines.

The central bank also indicated that it does not plan to hike interest rates through 2023 and that it would continue its program of buying at least US$120 billion of bonds a month. This latter point was instrumental in helping cap the rise in yields that eventually saw the 10-year fall below 1.7%.

Possibly equally important in helping stock markets stay firm was testimony by Ms Yellen, who said although markets valuations may be high, she was not overly concerned.

“I think that in an environment where asset prices are high, that what’s important is for regulators to make sure that the financial sector is resilient and to make sure that markets work well,” said Ms Yellen, “and that financial institutions are appropriately managing their risks.”

Singapore’s industrial production on the rise

Industrial production in the local economy jumped 16.4% in Feb year-on-year, the fourth consecutive month of expansion and better than the 15.8% that the private sector had expected. The main contributor was electronics manufacturing, which grew 30.3%.

CapitaLand to restructure

Property giant CapitaLand in March announced an overhaul of its structure in order to sharpen its focus on strategic growth and shareholder value. It is planning to split itself into two entities – the first a private company which will look after the property development business and the second a newly-created asset management entity.