Strong company performance and solid economic data send stocks to another record high
David Joy – Chief Market Strategist, Ameriprise Financial
Weekly markets commentary — April 19, 2021
A strong start to first quarter earnings season, and another round of solid economic reports helped drive U.S equities to their fourth straight week of gains. The big banks easily exceeded earnings expectations on strength in capital markets activity and the release of loan loss reserves, while surging retail sales and housing starts, falling new jobless claims, and rising consumer sentiment provided further evidence of firming economic activity. And half of all Americans have now been vaccinated with at least one shot, contributing to the growing economic optimism.
The S&P 500® index added 1.4 percent on its way to ending the week at a new high at 4,185. So far in the month of April the index is higher by 5.4 percent, bringing its year-to-date total to 11.4 percent. The gains were well distributed across sectors, as advancing stocks easily outpaced decliners. The best performing sectors last week were an eclectic mix of Utilities, Materials and Healthcare. Laggards included Communication Services, Energy and Industrials. The Russell 1000 Value index climbed 1.2 percent, while the 1000 growth index added 1.8 percent. Since the start of April, Technology, Consumer Discretionary, Real Estate and Communication Services have led the way higher, while Energy, Consumer Staples, and Industrials have trailed. From the start of April, the Russell 1000 Growth index has returned 7.6 percent, while the Value index has delivered a 3.4 percent return.
Bond yields and the dollar decline; credit conditions improving
Bond yields declined for the third straight week, as fears of a steady march higher continued to recede. The yield on the ten-year note fell eight basis point to 1.58 percent on the week, and a total of 16 basis points since its peak at the end of the first quarter, driven in part by inflows from foreign investors attracted by the competitive yield, unbothered by the well anticipated rise in the headline consumer price index for March, which jumped to 2.6 percent year-over-year from 1.7 percent in February. The core rate experienced a more moderate increase to 1.6 percent from 1.3 in February.
The Bloomberg Barclays U.S. Aggregate index rose for the second straight week, although the gain was a modest 0.3 percent. It remains lower on the year by -2.6 percent. The stronger economy continued to push high yield spreads to their lowest weekly close since 2007. At just 322 basis points, the spread sits well below its ten-year average of 486 basis points, supported by improving credit conditions. Standard & Poor’s reports a total of 16 corporate defaults in the U.S. so far this year, compared to 36 at the same time last year.
The dollar has traced a path similar to bond yields, falling steadily since the start of the month, and in the process alleviating fears of pressure on commodity prices, dollar-denominated foreign bonds, and recovering exports. The VIX index also fell once again, ending the week at 16.25, its lowest level since before the market selloff last spring.
The Eurozone sees renewed strength; First quarter earnings accelerate this week
Stocks in the Eurozone are also enjoying renewed strength. Reports of accelerating vaccine distribution are contributing to the improved outlook. The EU reported reaching a milestone of 100 million shots administered as of last week, out of a population of approximately 450 million. The EuroStoxx 50 index climbed 2.1 percent in dollar terms last week, its third straight week of gains. Since the start of the month the index is higher by 4.9 percent. Overall, the MSCI ACWI ex-U.S. index rose 1.6 percent last week, and 3.7 percent this month in dollar terms. Emerging market stocks rose 2.5 percent last week, led by a 4.5 percent dollar denominated surge in Latin America. It was the third straight week of gains for the region, which nevertheless remains lower on the year.
Headlining this week’s economic calendar are new and existing home sales, leading indicators, and flash PMIs. So far, only about ten percent of S&P 500 companies have reported first quarter results, but the pace accelerates this week, with another 81 index constituents scheduled to report. Among the notable companies on the calendar this week are United Airlines, Coca-Cola, Proctor & Gamble, CSX, Netflix, Johnson & Johnson, Verizon, American Airlines, AT&T, Intel, Union Pacific and American Express.
Sources: Factset, Bloomberg. FactSet and Bloomberg are independent investment research companies that compile and provide financial data and analytics to firms and investment professionals such as Ameriprise Financial and its analysts. They are not affiliated with Ameriprise Financial, Inc.
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The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) is a widely used measure of market risk. It shows the market's expectation of 30-day volatility. The VIX is constructed using the implied volatilities of a wide range of S&P 500 index options.
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