Market in a Minute April 26-30, 2021
by Sheila & Rich Jamison
Stocks were little changed, consolidating near intermittent new highs, underpinned by exceptionally strong Q1 US earnings reports. Briefly, we had three sideways days, a decent up day and a disappointing finish. The DJIA, NASDAQ and Russell 2000 posted 0.2-0.5 percent declines, especially frustrating in light of a lot of good news. The S&P 500 bucked the trend by gaining one point, a number so small that it is lost to rounding.
The benchmark 10-year US Treasury yield climbed eight basis points to 1.63% amid firmer commodity prices and higher inflation expectations. WTI crude oil rose $2 to $63.85. Volatility (as per VIX) rose to 18.6 from 17.4.
The Fed acknowledged improved economic performance but stopped short tapering its asset purchase program. Fed Chair Powell said the economy has improved since December but needs to make substantial further progress. That will take more time to achieve.
The “Advance” GDP (first estimate of three) grew at a 6.4% annual rate in Q1, building on the 4.3% growth rate recorded in 2020’s Q4. This could absorb the pandemic-caused economic slack by the middle of this year.
A notable jump in personal consumption helped fuel the rebound as more sectors of the economy reopened. We had a record-setting 21.1% rise in personal incomes in March and a 4.2% rise in personal spending, fueled by another round of stimulus checks. The savings rate rose to 27.6% in March from 13.9% in February as the payments hit Americans' checking accounts. This suggests consumers have plenty of spending power at their disposal as the economy continues to reopen.
President Biden unveiled a $1.8 trillion spending plan designed to pay for education, childcare and paid family leave. Biden wants a hike in the capital gains and dividends tax on those earning more than $1 million annually to pay for part of the new spending. The top income tax rate would rise to 39.6% from 37%. He rejected an alternative infrastructure plan offered by Republican lawmakers that was smaller and more-targeted than his own.
A global semiconductor shortage is reportedly spreading to makers of smartphones, televisions and home appliances. Several automakers declared they will undertake significant production cuts due to the bottlenecks.
At the start of the reporting season, Q1 earnings were expected to increase 24.5%. With 3/5ths of the S&P 500 Index companies’ results in, blended eps shows that earnings growth is running at an astonishing 45.7%. Sales rose 9%. Both numbers are year-over-year (that is, compared to when the effects of the pandemic were first being felt). About 84% of companies are beating analysts' estimates.
Around the World
The Eurozone economy contracted 0.6% in Q1 from last quarter (or -1.8% annualized) as lockdowns dragged on. However, forward-looking sentiment indicators are rebounding strongly and inflation rose to a 1.6% rate.
Japan's March jobless rate fell to 2.6%, but the data do not reflect the newest state of emergency. Japan has subsidized employers so they can maintain their payrolls rather than lay off workers. The country's economy is expected to grow around 4% this year after contracting 4.8% in 2020.
China's manufacturing purchasing managers' index decelerated to 51.1 in April from 51.9 in March.
India has become the epicenter of the global pandemic as it struggles to vaccinate its population amid a surge of COVID-19 cases. The country's medical system is under intense strain and faces shortages of personnel and supplies. Foreign aid has been mobilized from around the world to provide India with supplies of vaccines, oxygen and other medical equipment, but officials fear that shortages will persist given the enormity of the crisis. Around 385,000 Indians a day are now being diagnosed with COVID-19, though it is feared the true rate of infection is many times that level.
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