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Market Strategy 5/03/2021

  • John Stoltzfus
  • May 3, 2021

It Ain’t Over ‘Til It’s Over

Refraining from jumping too quickly to conclusions midst the ongoing transition towards a post pandemic environment could well serve investors
Key Takeaways
  • With 60% of companies in the S&P 500 having reported, earnings are up 50.6% on revenue growth of 11.3%. The current earnings season continues to exceed expectations with another 138 companies to report this week.
  • Stocks delivered strong performance in April with the S&P 500 and the Nasdaq Composite indexes posting gains of 5.24% and 5.4% respectively on the month. A combination of vaccinations, monetary policy accommodation, rescue stimulus spending as well as sizeable increases in earnings and revenue growth provided a host of tailwinds in April.
  • Economic data released last week including Q1 GDP, personal income, and consumer sentiment presented a brace of evidence of economic improvement. This week the nonfarm payroll and jobless numbers on Friday
people walking

With three major stateside indices poised near their all-time highs (reached just last week) and a slew of economic data scheduled for release this week, including the nonfarm payroll number and the unemployment data on Friday, investors are not likely to suffer from boredom.

April treated stateside stocks well with equity benchmarks tacking on gains on the back of a host of factors that in aggregate provided substantial tailwinds. For the month of April the Dow Jones Industrial average, the S&P 500, the NASDAQ Composite (over 40% weighted in tech or tech related stocks), the S&P 400 (midcaps), the S&P 600 (small caps) and the Russell 2000 (small caps) respectively gained 2.71%, 5.24%, 5.4%, 1.99%, and 2.07%.

Ironically, in the last week of the month of April stocks shed some of their gains from earlier in the month likely on some profit taking tied to jitters linked to the risks presented by a higher tax regime proposed by the Biden Administration (including a higher capital gains tax) and an increase among investors of a perception that inflation risk (at least in the near term) appears a justified worry as supply chain disruptions caused by the pandemic surface across a number of industries push up costs for business and prices for consumers.

Quotation from Aenean Pretium

With interest rates as low as they still are it’s not surprising to us that stocks may have gotten ahead of themselves leading into this earnings season…

Last week saw Fed Chairman Jerome Powell reiterate his and the Federal Reserve’s commitment to keeping interest rates low to allow the economy to heal. President Biden in his first 100-day speech of his Presidency on Capitol Hill reiterated his administration’s determination to supersize government spending financed by higher taxes for higher wage earners, investors, the wealthy and corporations.

Beyond the torrent of liquidity and stimulus coming from Washington, DC economic data released last week pointed once again that indeed even as things are getting better as the US economy begins to reopen (with consumer sentiment and business confidence improving on back of the significant success in getting increased numbers of the population vaccinated) a gnawing question remains about when will the largesse of outsized monetary accommodation and super-sized fiscal policy prove to be too much for the economy to digest successfully.

This first quarter earnings season, the S&P 500 with 302 of 500 companies having reported, has so far seen profits up 50.56% on the back of an 11.3% increase in revenues. Eight of the S&P 500’s 11 sectors have posted positive earnings growth as of last Friday with just three (energy, industrials and utilities) showing negative earnings growth.

For all that good news a number of companies that beat expectations handsomely traded lower after reporting results, suggesting to us that investors had already priced in much of the good news going into this earnings season. With interest rates as low as they still are it’s not surprising to us that stocks may have gotten ahead of themselves leading into this earnings season as some investors jumped back into equities with the recent capitulation by bears and skeptics gripped by FOMO (fear of missing out) pushing stocks higher throughout most of April.

The new trading month starts stateside with the S&P 500 and the NASDAQ Composite respectively off just 0.72% and 1.25% from their respective record highs posted before last Friday. The yield on the 10-Year Treasury note at 1.628% last Friday was up some 77.76% from the start of the year and just 6.58% off its peak thus far in 2021 of 1.742% reached on March 31.

In our view the ten-year yield could move higher near term as inflation risk worries tied to monetary policy and government spending tied to stimulus garner attention. Near term any progress in stemming the supply chain disruptions challenging the progress of returning the economy to the next new normal should be welcome by the markets near term. The politics of stimulus on the other hand remain a longer-term challenge for the markets to factor.

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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