Market Strategy 5/24/2021
- May 24, 2021
Stay the Course
Signs that the current economic re-openings are likely to stick this time around appear to be markedly improving business and consumer sentiment
Key Takeaways
- With 95% of companies in the S&P 500 having reported, earnings have risen 49.2% on revenue growth of 10.3%. The consumer discretionary (+176%) and financials (+135%) sectors are driving results with triple-digit percentage gains.
- A brace of economic data this week on a wide variety of economic indicators ranging from manufacturing, home prices, personal income and consumer confidence will provide plenty of information on the health of the US economy for investors to ponder.
- Supply chain disruptions that have fed inflation worries over the past few months are beginning to show signs of easing in some segments of the commodity complex, suggesting that business leaders armed with technology and advanced logistics will be a good match for challenges that need to be overcome.
As markets stateside start the week ahead of the Memorial Day weekend a brace of economic data scheduled for release, which includes updates on manufacturing, home prices, consumer confidence, durable goods orders, GDP, inflation, personal income as well as results and any guidance from the few remaining S&P 500 companies left to report results for Q1, should serve to keep investors plenty occupied.
News of any progress (or lack thereof) in producing an agreement acceptable to both sides of the aisle on Capitol Hill on infrastructure will also likely play on dayto-day investor sentiment along with geopolitical news this week.
Last week’s market action toyed with bulls and bears as stocks bounced between gains and losses to close with the major indices stateside ending the week pretty much flat with either a negative or positive bias depending upon which index one looked at.
As S&P 500 Q1 earnings season draws to a close with some 95% of companies having reported, it’s fair to say results have significantly surprised to the upside even with investors likely having to a large extent expected to be wowed in light of the base effect comparison against last year’s results.
As S&P 500 Q1 earnings season draws to a close with some 95% of companies having reported, it’s fair to say results have significantly surprised to the upside even with investors likely having to a large extent expected to be wowed in light of the base effect comparison against last year’s results. Keeping that background in context it’s no wonder that market participants have seemingly underappreciated great results this earnings season that now appear to have been “priced in” ahead of companies “delivering the goods” when they actually reported.
The minutes from last month’s FOMC meeting signaled that policy makers likely will not be reluctant to taper policy mechanisms when the need to change course surfaces in the data flow. The market appeared somewhat if not too relieved after pondering the minutes.
Supply chain disruptions that have fed inflation worries over the course of the past few months are beginning to show signs of easing in at least some segments of the commodity complex as producers of materials such as lumber and copper begin to address the shortfalls in supplies that have rubbed against rising demand as the US and countries around the world work toward reopening their economies on a potentially more normalized basis than earlier re-openings from the pandemic.
In our view the vaccines of efficacy are providing greater confidence this year among business and consumers with expectations that this year’s reopenings of segments of the domestic and global economy shuttered or partially closed since the Covid-19 pandemic struck in 2020 are likely to stick for the better.
Last week, stateside equity market action saw investors’ interest in information technology improve somewhat with the NASDAQ Composite (over 40% weighted in tech or tech-related stocks) posting a modest gain on the week ended last Friday while the Dow Jones Industrial Average and the S&P 500 slipped lower in the same period. While the shortages weighing on the semiconductor supply chain remain the challenge du jour for the tech sector, signs that other supply chains in other sectors (particularly the commodity space) are working out the kinks presents the realty that business leaders armed with contemporary technology and advanced logistics will be a good match for the challenges that need to be overcome.
With the dollar’s recent weakening foreign markets are likely to garner more attention from US investors than they have thus far this year as signs of what we expect will be a global economic recovery become clearer on the horizon with international economic re-openings poised to gain momentum as improved distribution and greater acceptance of the vaccines take place overseas.
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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