The month of March began with a rush on the stock market. Economic reports continued to show signs of a recovery, and there was an FOMC meeting on March 19 where equity market players thought that the Fed would change its bias to neutral after easing for most of the past two years. March 1st was actually the start of a nice trend, as stronger manufacturing numbers from the ISM index carried the Dow to a 262-point gain. The beaten-up NASDAQ even started the month with a healthy 71-point gain. This positive momentum carried equity indices to weekly gains in the first two weeks of March. The tide turned in the days following the March 19th FOMC meeting, where the Fed left strong clues that interest rates may need to be increased before too long. While most investors took the news as a sign the economy is recovering, there was a sense of worry. Market players are concerned that raising interest rates too soon will curtail any recovery in corporate profits. This newfound feeling of rate-hike pessimism caused a slight sell-off for the rest of the month, before another slight burst of optimism in the last week of March. The final days of trading in March were extremely light as investors looked forward to the Easter holiday.

Earnings in technology and telecommunications stocks continued to under-perform despite some days in which major technology stocks showed positive earnings news. The general weakness in this sector continued to bother investors and keep the NASDAQ from experiencing any major gains. Retailers continued to perform well in March, as discount retailers again led this sector, carrying retail stocks to consistent gains during the month. Energy stocks performed poorly for the month of March as oil prices have been steadily increasing across this sector. Health care and housing-related stocks continued to be the best stocks to invest in as these sectors have been performing consistently better for the past few months. The financial sector also performed well as the economy began to show strong signs of recovery. Travel and leisure stocks actually performed better than previous months, but there still is a lot of ambivalence towards these sectors as consumers have not begun to spend on these luxuries in earnest. Transportation stocks in airline and automobile industries showed slight gains as the data continues to show that consumers are spending money on new cars and are indeed taking advantage of the discount fares.

Some days of the month were particularly strong, with the beginning of March starting a rally that continued through the middle of the month. Market players kept the Dow above the 10,000-point mark for the entire month, with several triple-digit gains to begin March. The index then fell off after the March 19th FOMC meeting, when the Fed implied that rates would be increasing before the summer ended. Most of March saw stronger corporate earnings, although rate-hike pessimists dictated the market's movement for much of the month. Concerns over accounting practices in major corporations abated slightly in March, although market players are still keeping a close watch in this area. The last trading sessions of the month saw a slight burst back up, but lackadaisical investing ahead of the Easter weekend holiday kept this gain from recovering all of the end-of-month losses. Days of increases outnumbered days of declines. The Dow closed the month with a 2.9 percent gain, while the NASDAQ recorded a gain of 6.6 percent. The S&P 500 also increased, finishing up 3.7 percent for March. The Russell 2000 recorded a 7.9 percent increase, while the market encompassing Wilshire 5000 index increased 4.3 percent in March.

Treasury Markets:
The beginning of the end?
Treasuries were generally negative for most of the month, with significant declines due to a variety of factors. Signs of economic recovery, specifically in equities, began to drive Treasury securities down as market players turned away from risk-free investment. The big story in financial markets was the FOMC meeting announcement on March 19th, where the Fed indicated that rate hikes would have to occur sometime this year, and the bias was moved to "neutral". Economic reports for most of March showed that the economic recovery was occurring. March began with a stronger manufacturing report from the ISM index, and continued on to a better-than-expected employment situation report released on the 8th of March. Reports from retail sales and a variety of housing reports continued their recent positive trends. The final days of the month saw stronger revisions to GDP, more gains in manufacturing, and continued recovery in consumer attitudes, all of which contributed to the negative month for Treasuries.

The FOMC meeting announcement was predictable, although this did not stop Treasury market investors to begin a sell-off. Market players were quite unhappy that the Fed made it clear that rate hikes were inevitable, and now it just remains a question of how long it will take the Fed to implement these rate hikes. The last days of the month saw relatively little commotion in Treasuries as market players awaited the three-day Easter holiday. Treasuries generally performed worse than February for the whole month of March.

As can be seen in the chart above, yields were higher for the most of the month of March. The mid-month figures saw a large upward trend in yields, a negative sign for Treasuries that continued through to the end of the month. The general optimism in equities and the inevitability of future rate cuts helped push Treasuries down in March. The 30-year bond saw a gain of 37 basis points in its yield for March. The 10-year note increased by 52 basis points, while the 5-year note outperformed the other securities and increased by 76 basis points. The 2-year note gained 67 basis points, while the 3-month bill showed very little movement for March, up just 3 basis points.

Damir Fonovich, Economist, Econoday