Daily Market Notes: 5-3-2021

On Friday, the market eased back from the record S&P and Nasdaq all-time highs from Thursday to nevertheless end April with its biggest monthly gain so far this year.

The S&P advanced by 5.2% which was its best month since November 2020, when President Biden was elected. Its gain showed that once again, April has been a very good month for the market recently, as this index has now been higher in 15 out of the past 16 years. It is now ahead by 11.3% for the year. .

Under Biden, the Dow Jones Industrial Average notched its best first 100 days under a new president since FDR took office in 1933, with a 9.9% return as of April 29th. It was up by 2.7% in April and is ahead by 11% so far this year.

The Nasdaq ended the month with a 5.4% advance and is higher this year so far by 8.8% and finished its sixth straight month with gains. The real hero has been the Dow Jones Transports which is now up for 13 straight weeks on strength in airlines, cruise ships and delivery services such as UPS and FDX.

On Friday, the indices all sold off as the Dow ended 185 points lower to 33,874 led by declines in CVX after its earnings report in addition to GS, IBM and CRM, all of which have done better lately. The S&P slid by 30 down to 4181 while the Nasdaq took a 119 point beating as mighty AMZN, which had rallied strongly ahead of its earnings on Thursday night, added a further 85 points on the opening, only to ease back as the session moved along and had the nerve to end with a 3 point closing decline, in a classic case of “buy the rumor/sell the news.” This index was also hurt by profit-taking in FB and GOOG, which both reached records after their strong reports earlier in the week. And AAPL continued its post- earnings slip for the second straight day.

The Russell 2000 Index of small stocks had nothing going for it and ended down by 29 to 2266 while the VIX rose to 18.61 so that 16.35 close from two weeks ago is still the number to break through on the downside, if that is ever going to be the case.

The rollout of COVID-19 vaccinations, massive support from the U.S. government and the Federal Reserve, and increasingly positive economic data have been driving expectations for a strong rebound for the economy and robust corporate profit growth this year. That has basically  helped stocks push higher and kept indexes near their all-time highs.

There was continued good economic news with the first estimate of G.D.P. at 6.4% for the best showing since 1986 and the trillions of dollars in government support that has gone out to help the U.S. economy recover from the pandemic. As a result, personal incomes rose by 21.1% in March, largely a result of the $1,400 payments that went out to most Americans as part of President Biden’s economic package. Consumer spending rose at the fastest pace in nine months with a gain of more than 9%. .

The Biden administration is also pushing for more infrastructure spending to help further boost the economy. The big policy and spending proposals have investors looking further down the road to what a “new normal” looks like after the pandemic.

On the other hand, the market still has some key concerns, including how government spending will impact taxes and inflation. To pay for his plans, Biden has proposed to almost double the tax rate that Americans who make more than $1 million in a year pay on profits from stocks and other investments. The president also wants to impose a 21% minimum tax on corporate foreign earnings in a bid to stop companies from stashing profits in countries with low tax rates.

Treasury yields have stabilized after jumping earlier this year as concerns about inflation rose. The yield on the 10-year Note slipped to 1.62% from 1.64% late Thursday and was down from 1.68% at the start of the month. But there is the expectation that yields could rise again if inflation starts to accelerate.

More than half of the companies in the S&P have now reported their results, which show earnings growth of 54% percent so far with 88% of them having beaten the expectations by more than 20% versus the traditional 9% over the past few years.

The S&P notched a gain of about 28% between November and April. Now the market enters the six-month stretch of May through October that has historically included among the weakest months of the year for stocks, hence the old adage of “sell in May and go away.” On the other hand, the S&P has posted gains during the May-October period in eight of the past 10 years, so this statistic is not as useful as it used to be.

This week the earnings parade continues with the following, among others: today – EL is lower; tonight – FANG, CHGG, CAR and ZI; Tuesday – Dow components PFE and DD plus CVS and ATVI; Wednesday – BKNG, GM, PYPL and UBER; Thursday – VIAC, BDX, K, MET, MRNA; Friday – CIG.

Economic reports will be highlighted by the April jobs report on Friday: today – March construction spending rose by 0.1, ISM April Manufacturing Survey slipped to 60.7; Tuesday – March factory orders and March trade deficit; Wednesday – ADP estimate for April jobs report, ISM April Services Survey; Thursday – weekly jobless claims; Friday- April non-farm payrolls for which the estimate is one million with the unemployment rate down to 5.8%.

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.