Market Strategy 4/12/2021
- April 12, 2021
Dance With The One Who Brung Ya
Investors showed renewed interest in technology and other “growthier” sectors last week
Key Takeaways
- Q1 earnings season unofficially starts this week when the big banks begin reporting results on Wednesday. Analyst expectations having moved higher since the start of the year suggest that any disappointments could receive harsh treatment.
- Recent economic data showed the ISM surveys of manufacturers and services firms handily beating expectations, implying that anticipation of a strong economic recovery is becoming increasingly realistic.
- The weekend edition of the Wall Street Journal also noted this week that recent data showed 19.4% of the US population has been fully inoculated against COVID-19.
The Dow Jones Industrial Average and the S&P 500 closed at respective record highs last Friday in a week that saw the recent rally in value-oriented cyclical stocks fade some as information technology, consumer discretionary, and communications services outperformed to lead the broad market higher. As of the April 9 close, the NASDAQ Composite was just 1.4% below its most recent closing record high, reached earlier this year on February 12. Investors last week rebalanced to offset what has been a decided preference for value over growth since last September.
In our view, it’s not so much that investors are closing their eyes to bid stocks higher as much as it might be that nearly 12 years after the end of the recession caused by the Great Financial Crisis, there’s a feeling that higher inflation and interest rates high enough to slow or derail a widely anticipated economic recovery appear not as imminent as earlier concerns might have suggested.
Worries about the cost of proposed spending programs by the Biden administration (or how such programs will be paid for), as well as investors’ perennial mistrust of the Federal Reserve’s capability to respond to inflation notwithstanding, higher stock prices suggest that investors are focused on evidence that, for now, shows more things getting better than not.
Granted, a recent pickup in cases of COVID-19 and emergence of variants of the virus are in evidence. However, the number of people stateside getting inoculated with vaccines to stem the spread of the pandemic is moving higher by the day.
The move lower in 10-Year US Treasury yields last week suggests that yields may have seen their highs for the first half of the year.
The weekend edition of the Wall Street Journal noted this week that recent data showed that 19.4% of the stateside population has been fully inoculated against COVIDE-19 in an article entitled “Ten Signs Things are Getting Back to Normal.” Among the positive developments noted by the WSJ were:
- Re-openings of Major League Baseball games (albeit in capacities limited to comply with individual state rules as to how many fans could attend the games).
- The “World of Concrete” trade show scheduled for June in Las Vegas.
- The re-opening of Disneyland California scheduled for April 30.
- Airlines booking middle seats, with one large holdout planning to join others already doing so on May 1.
- Hotel occupancy in the US reaching 58.9% during the week of March 14—the highest level since the first week of March 2020.
- Indoor dining ramping up across the country.
Economic data released over the last two weeks shows an upward trend emerging in job growth evidenced by the March non-farm payroll employment numbers. A higher than expected uptick in the initial jobless claims last week was offset somewhat by the JOLTS index released by the Labor Department that showed job openings posted by US corporations had jumped to just under 7.4 million jobs—the highest level since November 2018.
Q1 earnings season for the S&P 500 companies unofficially begins this week on Wednesday. The big banks will start to report results for the quarter just ended. With consensus analyst expectations having moved higher since the start of the year, disappointments could receive harsher receptions. Also, companies just meeting expectations could be taken as disappointing. That said, with the economic outlook stateside improving, look for investors to focus on any guidance offered as companies report this season.
John Stoltzfus
Title:Chief Investment Strategist, Oppenheimer Asset Management Inc.
John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.
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