Market Highlights: April 19, 2021 - Fourth Consecutive Week of Gains
Major benchmarks show fourth consecutive week of gains. Technology and small-cap sectors slightly lagging. Good performance in health care and mining shares. Earnings season starts positively. Vaccine news affecting market sentiment. Economic signals supportive with strong retail sales. Inflation concerns and price pressures reported. Stay updated on the latest market developments.
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Week in Review April 19, 2021 LAST WEEK IN REVIEW Last week, the major benchmarks recorded their fourth consecutive week of gains and moved to record highs. The technology-heavy Nasdaq Composite index and the small-cap Russell 2000 Index slightly lagged the large- and mid-cap benchmarks and stayed below their recent highs. Health care shares were solid within the S&P 500 Index, helped by gains in insurance stocks, while rising gold and copper prices boosted mining shares. Energy shares were roughly flat after retreating late in the week. The week kicked off the unofficial start of earnings season with 22 of the S&P 500 companies scheduled to report first-quarter results, according to Refinitiv. Traders I spoke with noted that overall sentiment seemed to get a boost from Wednesday's release of earnings results from banking giants JPMorgan Chase, Goldman Sachs, and Wells Fargo. Analysts polled by both Refinitiv and FactSet currently expect overall earnings for the S&P 500 to have grown by roughly 25% in the quarter on a year-over-year basis, the most since the sharp cut in corporate tax rates that took effect in 2018.
LAST WEEK IN REVIEW - Cont. Vaccine news also appeared to drive sentiment. Futures wavered on Tuesday morning after US regulators announced that they were suggesting a "pause" in Johnson & Johnson's coronavirus vaccinations following rare reports of blood clots. On Thursday, however, investors seemed encouraged by Pfizer's announcement that it could deliver 10% more of its vaccine by the end of May than earlier promised. Moderna said its similar mRNA vaccine was more than 90% effective at protecting against COVID-19 and more than 95% effective against severe disease up to six months after the second dose. U.S. MARKETS & ECONOMY The week's economic signals also seemed supportive. March retail sales, reported Thursday, grew by 9.8%, the most since May. Gains were broad-based and reflected both the continued reopening of restaurants and other retail operations, as well as a recovery from a 2.7% pullback in February due to exceptionally severe weather. Investors also welcomed some more exceptional manufacturing data, with a gauge of mid-Atlantic factory activity hitting its highest level in nearly five decades. Weekly jobless claims came in at 576,000, well below expectations and a new pandemic-era low. The University of Michigan's preliminary gauge of consumer sentiment also reached its best level (86.5) since the pandemic began but came in a bit below consensus expectations. The week brought essential inflation data. Headline consumer prices rose 0.6% in March, while core (less food and energy) prices rose 0.3%, both moderately above consensus expectations. Import prices rose 1.2% in the month, also above forecasts. News also continued to emerge about price pressures in parts of the economy affected by supply disruptions. The Wall Street Journal, for example, reported a dramatic increase in rental car prices as firms struggle to rebuild fleets because of slowed auto production, which is resulting in turn from the global chip shortage. Inflation concerns may have been tempered by Federal Reserve Chair Jerome Powell's interview on "60 Minutes" the previous weekend, in which he reiterated that policymakers would like to see inflation "on track to move moderately above 2% for some time." 2
U.S. MARKETS & ECONOMY - Cont. As the humble writer of this update, I do not believe the consumer price report was even close to being accurate. Food prices are up nationally by north of 7.0%, while gas prices are up over 30.% nationally. I found this article in the Asia Times that highlights some of the anomalies coming from the reported CPI number last week. https://asiatimes.com/2021/04/more-inflation-than-meets-the-eye-in-us-retail-jump/ U.S. EQUITY MARKET PERFORMANCE As of close Friday, April 16, 2021 Index Friday's Close Week's Change % Change YTD DJIA 34,200.67 400.07 11.47% S&P 500 4,185.47 56.67 11.43% Nasdaq Composite 14,052.34 152.15 9.03% S&P MidCap 400 2,723.01 52.49 18.05% Russell 2000 2,264.89 21.42 14.51% Source: Bloomberg. This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results. 3
US YIELDS & BONDS Despite stronger-than-expected economic data, US Treasury yields fell over the week, with the 10-year Treasury note yield declining to 1.57% from 1.67% the previous Friday. Traders pointed to stronger demand from Japanese investors and other technical factors as catalysts for the rally. Also, they noted that upbeat economic data likely caused investors to reduce their expectations for more fiscal stimulus and, relatedly, Treasury issuance. The broad municipal bond market posted gains through most of the week but underperformed Treasuries. The sector saw further compression in credit spreads the yield differential between higher- and lower-quality bonds of similar maturity. According to Lipper data, the asset class continued to be buoyed by robust cash flows into municipal bond mutual funds, which totaled USD 2.5 billion for the week ended April 14. Traders observed relatively lighter trading volumes and balanced flows in the investment-grade corporate bond market to start the week. Spread movements were somewhat limited apart from banking sector spreads, which widened amid post-earnings issuance. The primary market picked up speed as the week progressed, and the new deals were generally met with adequate demand. The solid economic recovery data, generally positive earnings outlook and optimism around government spending plans supported the performance of high yield bonds. Traders noted, however, that robust issuance weighed on some market segments as investors raised cash to participate in new deals. US TREASURY MARKETS & WEEKLY YIELD CHANGE As of close Friday, April 16, 2021 3 Mth: 0.00 bps to 0.01% 10-yr: -0.08 bps to 1.58% 2-yr: +0.01 bps to 0.16% 30-yr: -0.07 bps to 2.26% 5-yr: -0.03 bps to 0.83% Source: For the week ending Apr 16, 2021. Bloomberg. Yields are for illustrative purposes only and does not represent the performance of any specific security. Yield changes are of one week. Past performance cannot guarantee future results. 4
INTERESTING NEWS OVERSEAS Shares in Europe rose in hopes of a strong recovery in the global economy and corporate earnings, despite a resurgence in coronavirus infections. In local currency terms, the pan- European STOXX Europe 600 Index posted a seventh consecutive week of gains, rising 1.20%. Germany's Xetra DAX Index advanced 1.48%, France's CAC 40 gained 1.91%, and Italy's FTSE MIB added 1.29%. The UK's FTSE 100 Index added 1.5%. Core eurozone bond yields crept higher as investors sold existing bonds to make space for long- dated issues from several eurozone countries. News reports indicating that Europe would receive additional vaccine supplies in the second quarter also lifted yields. However, yields dipped slightly after the US imposed new sanctions on Russia. Yields in peripheral European economies widely tracked the core markets this week. UK gilt yields broadly followed US Treasury yields lower. German Chancellor Angela Merkel urged Parliament to approve new laws that would allow federal authorities to impose strict coronavirus restrictions, such as curfews, on areas with high infection rates (Marshall Law kind of stuff). Data showed that infections were rising in Germany, which Merkel said was firmly in the grip of a third wave of the pandemic. England, which has vaccinated almost two-thirds of its population, started reopening shops, personal care services, and outdoor dining this week. Northern Ireland said that it would allow outdoor dining from the end of April, accelerating its exit from lockdown. However, Ireland, where the vaccination programs have progressed more slowly, plans to start lifting measures in May. France, Germany, and Italy began to accelerate their vaccination campaigns, the Financial Times reported. The UK economy grew 0.4% in February, helped by an uptick in factory output and retail and wholesale sales, official data showed. The 2.9% contraction that the economy suffered in January was revised to a 2.2% slowdown. Japanese stock markets were mixed during the week, with Nikkei 225 Stock Average (-0.6%) and the broader TOPIX (-0.3%) ultimately finishing the period marginally lower. The yen weakened a little against the US dollar, closing in the high JPY 108 range. Meanwhile, benchmark 10-year government bond yields declined, finishing the week at 0.085%. Lastly, the Shanghai Composite broad market index of A-shares fell 0.7% over the week to Friday. The CSI 300 large-cap index, with its higher weight in technology stocks, fell 1.4%. Asian and Chinese markets were broadly higher Friday following critical Chinese economic data. Traders said mainland investors appeared unsure whether strong GDP data would bring forward liquidity tightening or if disappointing March industrial production data would cause the authorities to pause. Consumer stocks rallied after a working paper from the government proposed fully lifting restrictions on family size. 5
INTERESTING NEWS OVERSEAS Cont. In China's bond markets, rumors spread that state-owned asset manager Huarong Asset Management might fail to meet its upcoming bond payments. The price of Huarong's bonds fell sharply but began to recover on Thursday after Huarong said it would repay an SGD (Singapore dollar) 600 million bonds in April. Contagion to other bonds (and equities) due to Huarong has been relatively mild, seemingly due to expectations that Beijing could step in with financial support for the prominent state-owned enterprise. Nevertheless, the week's sell-off in Chinese offshore dollar-denominated bonds was the biggest since March 2020. Sentiment in both the domestic (RMB) and offshore (USD) bond markets was hurt by new regulations on Tuesday that local government financing vehicles should choose bankruptcy if they could not repay their debt. The timing of this announcement shook investors, coinciding as it did with Huarong's troubles. The 10-year Chinese central government bond yield fell five basis points (0.05%) to 3.18% despite robust economic data. Analysts pointed to a "flight to safety" factor given the volatility in credit markets from Huarong. Assurances on liquidity from the People's Bank of China, China's central bank, also helped ease concerns over a potential increase in funding costs. The renminbi had a good week in foreign exchange markets, gaining 0.5% against the US dollar. 6
THE WEEK AHEAD Investors in the US will turn their attention to the Markit PMI survey, with forecasts suggesting the private sector activity expanded in April at a record pace, helped by lifting pandemic business restrictions in many states and the government's $1.9 trillion stimulus package. Other notable publications include existing and new home sales, Chicago Fed National Activity Index, and the weekly jobless claims report. On the corporate front, the first-quarter earnings season continues, with reports to watch, including those from IBM, Netflix, Intel, Snap, Johnson & Johnson, Procter & Gamble, Coca-Cola Co, Philip Morris International, American Express, Verizon Communications, AT&T, and Schlumberger. Have a great week. Stephen Colavito, Jr. Managing Director Chief Investment Officer Private Wealth Chief Market Strategist Lakeview Capital Partners, LLC 1201 Peachtree Street NE Suite 1850 Atlanta, GA 30361 (404) 418-7776 (office) (404) 313-1388 (mobile) Past performance is not indicative of future results. Lakeview is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. This review does not constitute an offer to sell, or a solicitation of an offer to buy, any interest in any investment vehicle, and should not be relied on as such. Securities offered through SA Stone Wealth Management, Inc, member FINRA and SIPC. Advisory services provided through Lakeview Capital Partners, LLC ("LCP"). LCP is not affiliated with SA Stone Wealth Management. More information about the firm can be found in its Form ADV Part 2, which is available upon request by calling 404-841-2224 or by e- mailing info@lcpwealth.com The information contained in this e-mail message is intended only for the personal and confidential use of the recipient(s) named above. If the reader of this message is not the intended recipient or an agent responsible for delivering it to the intended recipient, you are hereby notified that you have incorrectly received this document and that any review, dissemination, distribution, or copying of this message is strictly prohibited. If you have received this communication incorrectly, please notify us immediately by e-mail and delete the original message. This message is provided for informational purposes and should not be construed as a solicitation or offer to buy or sell securities or any other financial instrument. Past performance is not a guarantee of future results. 7
