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Market Strategy 4/26/2021

  • John Stoltzfus
  • April 26, 2021

Everything’s Coming Up Roses?

As the number of vaccines administered stateside has moved higher, business and consumer sentiment has broadly improved from the end of last year.
Key Takeaways
  • Q1 earnings season continues to exceed expectations with momentum picking up this week as 177 companies in the S&P 500 are scheduled to report results. Thus far with just under 25% of companies having reported, earnings are up 45.3% in Q1.
  • Last week the S&P 500 closed flat with a slightly negative bias for the week while the S&P 400 midcaps and the Russell 2000 small caps edged higher. In addition, growth outperformed value for a third week in April.
  • Economic data released last week points towards progress leading to a sustainable economic recovery in the US.
  • Last week the Conference Board’s Leading Economic Indicator had a sizeable increase in March with all ten components showing improvement. New home sales were at their highest levels since 2006 boosted by low interest rates. 
woman in mask

The S&P 500’s Q1 earnings season results have added to evidence that the stateside recovery from the pandemic is gaining traction and likely to gather further momentum in the second quarter as well. With 121 companies or just under 25% of the benchmark’s components having reported results thus far earnings are up 45.3% on the back of a 5.6% increase in revenue growth.

Recent economic data has improved as well. A number of data points released last week showed improvements in a number of areas including mortgage applications, initial jobless claims, the Conference Board’s Leading Economic Indicator, new home sales (highest level since March of 2006), activity in the services sector as tracked by the Markit Services PMI and the Kansas City Federal Reserve’s gauge of manufacturing activity.

Global stocks have moved higher this year on improving economic data coming out of the US. Expectations of an economic recovery stateside typically auger positively for global growth to tick higher as economic growth stateside can boost the appetite of both businesses and consumers for imported goods. The dollar’s move off its recent high perch suggests to us that the recent slip in the value of the dollar against a number of foreign currencies in some part reflects not only the recent ebbing in the level of the 10-year Treasury yield but also the strength of the US economy reflected in a broad array of data from job growth, initial jobless claims, new home sales, gauges of consumer confidence and a shortage of folks to fill jobs being posted by employers.

Quotation from Aenean Pretium

At this juncture we do not expect the Federal Reserve to miss its mark when it comes to triggering tapering or even an upward adjustment in its benchmark rates if needed.

This week, 177 S&P 500 companies are scheduled to report earnings results. With the economic calendar laden with data that should provide further clarity on the progress of stateside economic growth the focal point for many investors and observers this week is likely to be the FOMC meeting and the Federal Reserve’s rate decision announcement on Wednesday that will be followed by Fed Chair Jerome Powell’s customary press conference. Our expectations are for the Fed Chair to reiterate on Wednesday the Fed’s commitment to current monetary policy.

The equity market and the bond market are likely to take their directional cues from a mix of not just all of the above this week but for any news that could provide clarity from Washington tied to the Administration’s plans on any further stimulus and economic rescue packages.

With the progress that’s been made thus far in vaccine distribution along with improvements in the economy including job growth and corporate earnings, concerns about overspending on supersized rescue and social programs while ignoring or scrimping on infrastructure have begun to be acknowledged by denizens of both sides of the aisle as well as their constituencies on Main Street and Wall Street.

In our view higher taxes for corporations and a potential big boost in taxes, particularly for an already highly taxed upper middle income group that is just barely perched on the lower rungs of a highly subjective assumption of what “wealth” in America is today could hurt innovation, entrepreneurship, investment, job growth and the future of the competitive stance and for prosperity for all in the US.

That said, for now the equity markets in our view reflect a continuing capitulation of a bearish overview of stocks and prospects for the economy that has overstayed its welcome among many investors who have been sidelined for as long as since the Great Financial Crisis or more recently since the misread of inflation by the bond market in the fourth quarter of 2018 or since the decline in the equity markets that ran from February 19 through March 23 of last year.

The risk of such capitulations in our experience is on the back end of such action after the capitulation process runs its course over a period of time.

For now the Federal Reserve appears to us to have adapted a policy akin to the old adage attributed to the colonists in the American Revolutionary War of “don’t shoot ‘til you see the whites of their eyes” when it comes to monetary policy regarding inflation. At this juncture we do not expect the Federal Reserve to miss its mark when it comes to triggering tapering or even an upward adjustment in its benchmark rates if needed. For now the Fed is our friend while as investors we keep a wary eye on political activity on Capitol Hill.

John Stoltzfus of Oppenheimer Asset Managment Inc.

John Stoltzfus


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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