Daily Market Notes: 5-4-2021

The market began the first day of the new month with a mostly higher showing, although weakness in the former large technology leaders put a damper on the best levels of the session.

For instance, the Dow was ahead by as much as 346 points before slipping somewhat as the afternoon wore on and finally ended with a closing advance of 238 to 34,113. It was led by gains in health care components such as AMGN and JNJ, in addition to advances in CVX on higher oil prices and HD and IBM.

Ditto for the S&P which also finished below its best level of the session as an unsustainable 28 points higher could not hold and as a result, it ended with a closing advance of 11 to 4192. The reason for this slide as the day moved on was a downside reversal in the Nasdaq which was up by 80 in the morning before reversing course lower and ended with a closing decline of 67 to 13,895.

It was hurt by AMZN, which went from a morning gain to a steep ending decline of 90 as it has now suffered the same poor post-earnings performance as TSLA, MSFT and NFLX after they have all moved lower primarily because their price/earnings multiples are too high to support much more on the upside until the second-quarter earnings results come out in July.

The Russell 2000 Index of small stocks was sort of in its own steady upside world and cruised to an 11 point gain, also off of its best levels, to end at 2277. The VIX slid a bit as the Dow and S&P gained and ended at 18.31.

Stocks have been grinding higher on expectations of an economic recovery and strong company profits this year as large-scale coronavirus vaccination programs help people return to jobs and normal behaviors after more than a year of restrictions. Massive support from the U.S. government and the Federal Reserve, and increasingly positive economic data, have also helped put investors in a buying mood, keeping stock indexes near their all-time highs.

While earnings have been solid, the market still faces several key risks, including a spike in COVID-19 cases in India shutting down manufacturing and commerce and hurting the global economic recovery, along with inflation concerns.

On the economic front, the April ISM Manufacturing Survey came in at 60.7 which was below consensus but still showed expansion. March construction spending also came in below consensus at a 0.2% advance.

The yield on the 10-year Note slipped to 1.60% from 1.65% late Friday. This helped gold prices to continue their recent rally from under $1,700 to a current $1,792 an ounce. Crude oil jumped to over $64 a barrel which also helped stocks in the energy group to advance.

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: yesterday  – EL was lower; today – CHGG, ZI, CVS, MPC, APO and Dow component PFE higher and CAR, IRBT, UAA lower; tonight – CZR, TMUS, SPCE, ZG, ATVI, MTCH, LYFT and MCFE; 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: yesterday – March construction spending rose by 0.1%, the ISM April Manufacturing Survey slipped to 60.7; today – March factory orders rose by 1.1%, the highest since January, March trade deficit rose to a record $74.4 billion and final March durable goods orders; Wednesday – ADP estimate for April jobs report, ISM April Non-Manufacturing 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.