Daily Market Notes: 4-1-2021

The market ended the first-quarter yesterday with a reversal of the reversal that had begun earlier this year, namely the preference of investors for value, cyclical, financials, energy and travel issues over the former high-flying technology issues that had led the market higher last year.

So we saw the Dow unable to hold onto an early gain and began to ease lower as the afternoon moved along and with five minutes to go it was down by around 25 points. Then, in only what the market makers can manipulate for the close, all of a sudden it ended 85 points lower to 32,981 and what else is new when this sort of last minute shenanigans takes place? And the decline was led by selling in some of the recent financial heroes such as GS, JPM and TRV.

The S&P also slid from its best levels of 36 ahead to an intraday record of 3994 to finally close 14 points higher at 3973. The Nasdaq was the best performer of all with a solid gain of 201 to finish at 13,247 and as mentioned above it was the forgotten FAANG group that led the way for a rare change this year in addition to the high-flyers such as TSLA, ROKU, ZM, MELI and CRWD, all of which have been in bear market declines of between 20 -30% off of their earlier in the year highs. So in a sense, as mentioned above, it was a reversal of the reversal of the recent pattern.

The Russell 2000 Index of small stocks did nicely with a 25 point advance to 2220 while the VIX slid down to 19.40 so let’s see after today’s higher start how low this is going to go and whether it can finally break through the 18.86 support level that resulted in some selling last week.

So after all was said and done, it was the market’s fourth straight quarterly gain. The Dow is ahead by 7.8% for the year, the S&P is up by 5.8% while the Russell 2000 is still the leader and is ahead by 12.4%. And just to show the extent of the switching back to the cyclical types of stocks, the Dow was ahead by 6.6% in March versus the Nasdaq’s .41% advance, which was the widest discrepancy between the two since February 2002, although that trend did reverse itself starting late Tuesday and yesterday as well.

After the stock market closed, President Biden started a speech in which he will discuss his plan to spend $2 trillion on infrastructure projects and how to pay for it and the details will be discussed in next Tuesday’s Weekly Market Comments.

The 10-year Note yield inched up to 1.74% and remains close to its highest level since before the pandemic rocked markets a year ago. COVID-19 vaccinations and massive spending plans by Washington have raised expectations for supercharged economic growth and a possible rise in inflation, which has pushed yields higher.

In his speech in Pittsburgh, Biden was giving details about where he wants to steer federal dollars to rebuild roads, bridges and the electric grid. Such programs could mean gushers of revenue for everything from raw-material producers to electric-vehicle makers.

To help pay for it, though, businesses may be looking at higher corporate tax rates, which would pressure their profits. Some investors also worry that all the spending and borrowing by the U.S. government could eventually lead to even higher interest rates for the economy.

Within the S&P, the best performance during the first quarter ended up being virtually the mirror image of earlier in the pandemic, with energy producers (plus 29%), financial businesses (plus 16%) and industrial companies leading the way.

The index’s 11 sectors notched gains in the first quarter, with energy topping the list as just mentioned versus being lower by 37% last year. Technology, which a year ago led the market with a 42% gain, rose just 1.7% in the first three months of this year. The consumer staples sector lagged the rest of the market with only a 0.5% gain.

Energy producers, banks and industrial companies have shot higher, along with smaller stocks, on expectations that a return to normalcy for the economy and Washington’s huge spending will mean big jumps in profit later this year. It is a turnaround from earlier in the pandemic when they plunged on uncertainty about when airplanes may be full again and burning jet fuel.

Stocks of companies that had been winners in the stay-at-home economy or that had been bid up on expectations for strong growth many years into the future, meanwhile, have lagged. AAPL  declined by 8% in the first quarter while beaten-down AAL climbed by 52%.

App-based meal delivery service Deliveroo slumped by 26.3% in its U.K. stock market debut. The weak showing came even after the stock was priced at the bottom of its potential range, reflecting investor wariness about whether this one could turn a profit as well as a growing backlash against “gig economy” companies and concerns over how they treat their workers.

This week sees some earnings before the floodgate of first-quarter reports starts next week. The lineup is as follows: yesterday – LULU lower and CHWY, PVH  and Dow component WBA higher; today – MU higher and PLAY, KMX lower.

Economic reports will have: yesterday –  March Chicago Purchasing Managers’ Index rose to 66.3 which was the highest since July, 2018, February pending home sales were lower by 10.6%; today – weekly jobless claims rose to 719,000 although the prior week was revised lower, ISM March Manufacturing Index rose to 64.7 which is a 37 year high, February construction spending slipped by 0.8% due to bad weather; Friday when the market is closed for Good Friday observance – March jobs reports which is expected to show a gain of 525,000 versus February advance of 379,000.

Donald M. Selkin

Chief Market Strategist

 

Disclosures:

Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our current or potential customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analysis concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, and Associated Press}. It is possible that at any given point in time, the author, Newbridge Securities, or one or more of its employees or registered individuals associated with Newbridge Securities, may hold a position, either long, or short, as well as options, bonds or other instruments in the companies mentioned in this report.