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Maintaining Caution, Remaining Optimistic Thumbnail

Maintaining Caution, Remaining Optimistic


Marco Fragnito, Managing Principal | Robert R. Fragnito, Chief Operating Officer & Financial Advisor


  • We remain optimistic on the trajectory of equities, but increasing inflation concerns and rising rates continue to present the need to maintain caution.


Markets moved higher in February as continued optimism was generated by fiscal stimulus, accommodative monetary policy, and COVID-19 vaccine rollouts. The Dow Jones Industrial Average rose 3.20%, the S&P 500 gained 2.60%, while the NASDAQ lagged with a gain of .90%.

However, by mid-month a shift in sentiment saw investors and we at MCF turn more cautious. We alerted our clients via email on February 23rd that due to rapidly rising long-term interest rates, the likelihood of market correction was rising. Based on this analysis, we began taking action to raise cash levels in our model portfolios. While a broader market correction has yet to materialize, the technology sector leaders decline into correction territory and beyond. We continue to monitor the trajectory higher on long-term interest rates, with the 10-year Treasury Note yield touching 1.60%. Valuations will become an issue at the present market levels if the trend in interest rates continues and especially if economic growth falls short of expectations. 


The big news in fixed income markets throughout the month was heightened inflation concerns. Driven by Treasury Secretary Janet Yellen’s call for a larger and more comprehensive stimulus package, along with improving economic data, a 5.3% jump in retail sales for January and strong survey results from Institute of Supply Management for both US manufacturing and service sectors. Most importantly continued strong rise in most commodities.

This saw 10 Treasury Notes hit a high yield of 1.60% while setting back by month end at 1.40%, while even longer-term US Bond yields surged above 2.00%. We at MCF also believe that with the ever-increasing government spending funded by further debt financing, yields will rise even higher in the coming weeks and months due to increased supply. This is an issue which could cause major disruptions in financial markets and the economy itself.


While we remain optimistic on equity markets longer-term, and we have become and remain cautious in the very short-term. In the fixed income markets there are select opportunities, however we have been and remain negative on US Treasuries.

If you have any questions, please contact us directly at 949.472.4579.

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The opinions expressed here reflect the judgement of the author(s) as of this date and are subject to change without notice. Information presented here is for informational purposes only and does not intend to make an offer, solicitation, or recommendation for the sale or purchase of any product, security, or investment strategy. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here. The information being provided is strictly as a courtesy. 


Wells Fargo Advisors, Angela Shin, “Monthly Market Commentary,” March 2, 2021. Business Insider, Matthew Fox, “3 reasons why the correction in tech stocks has further to run, according to Morgan Stanley's top US equity strategist,” March 8, 2021.