Weekly Market Performance – Earnings Momentum Continues
U.S. and International Equities
Most major United States markets were lower this week. After the run this year, some market participants likely took some profits to lock in gains on concerns that much of the good news may be priced in. Concerns about higher capital gains tax rates weighed on sentiment some midweek. Developed international markets (MSCI EAFE) finished lower while emerging market stocks (MSCI EM) finished in the green.
Small Caps Stay Afloat
With the exception of emerging markets stocks, U.S. small caps, based on the Russell 2000 index, had a positive week. This index is up roughly 125% since its March 18, 2020 low. Going forward, LPL Research believes the early-stage bull market along with the economic expansion could continue to help these equities. We are increasingly positive with U.S. small caps.
Prime Real Estate
We have highlighted the real estate sector in the last two Weekly Market Performance blog posts. This sector has enjoyed a rebound this year and is this week’s best performing sector. With the economic reopening on the horizon, commercial real estate should be a benefactor, while recent stability in interest rates has helped the outlook for income-oriented sectors.
Energy Propels Backwards
Since the fourth quarter of last year, energy has rarely been mentioned as a market lagging sector, but this week, the sector earns that distinction. The West Texas Intermediate (WTI) pullback this week helped influence this week’s sector results.
Earnings, Earnings, Earnings
With over 120 S&P 500 index companies having reported, first quarter earnings growth is tracking to a 32% year-over-year increase, 8 percentage points above March 31 estimates. The consumer discretionary and financials sectors are seeing the strongest earnings growth thus far. Guidance from corporate America has generally been positive, pushing future estimates higher.
“The bar was higher coming into this earnings season and you have to hand it to corporate America, they have cleared that high bar with relative ease,” explained LPL Financial Chief Investment Officer Burt White.
Fixed Income Recap
Bonds, as represented by the Bloomberg Barclays U.S. Aggregate, gained marginal ground this week as the 10-year Treasury yield moved slightly lower for the third week in a row. High yield bonds, as denoted by the Bloomberg Barclays High Yield index, gave back some ground this week, as investors took profits from one of this year’s best-performing bond asset classes.
West Texas Intermediate (WTI) crude oil lost ground this week after last week’s rally. Meanwhile, natural gas finished the week higher, continuing its run from the prior week. Copper was this week’s commodity standout, finishing the week up slightly over 4%. Industrial metals continue their climb as the economy reopens. DXY, the U.S. Dollar Index, weakened marginally for the third week in a row but is still up over 1% for the year.
U.S. Economic Data Recap
According to Reuters, Federal Reserve (Fed) Chairman Jerome Powell stated in an April 8, 2021 letter that inflation could temporarily increase “a little higher” this year as the economic recovery strengthens and as supply constraints push up prices in some sectors of the economy.
Moreover, the Fed chair’s letter stated that the Fed “understands well the lessons of the high inflation experience in the 1960s and 1970s” and that “We do not anticipate inflation pressures of that type.” To conclude, Powell reiterated that the Fed has the tools to combat overreaching inflation pressures, presuming they arise.
Jobless Claims Continue to Decline
According to the U.S. Department of Labor, over 545,000 Americans filed for unemployment insurance last week, which again was well below the Bloomberg consensus forecast of over 600,000. Continuing claims were slightly higher than consensus, however they improved over the previous week. Overall, the data still suggests more improvement in the labor market.
Next week, the following economic data is slated to be released:
Monday: March durable orders
Tuesday: February S&P/Case-Shiller Composite and Federal Housing Finance Agency (FHFA) home price index, April consumer confidence
Wednesday: March wholesale inventories, April FOMC meeting
Thursday: Weekly initial and continuing claims, Q1 GDP, March pending home sales
Friday: March personal income and consumption expenditures, April Michigan sentiment
First quarter earnings season will continue with more than 180 companies reporting earnings results.
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