Read the 10 stories to remember from the week which ended April, 16th 2021.
Year-to-date performance main asset classes (source: investopedia)
Story #1: Stocks move to new highs. Most of the major benchmarks recorded their fourth consecutive week of gains and moved to record highs. The technology-heavy Nasdaq Composite index and the small-cap Russell 2000 Index slightly lagged the large- and mid-cap benchmarks and stayed below their recent highs. Health care shares were particularly strong within the S&P 500 Index, helped by gains in insurance stocks, while rising gold and copper prices boosted mining shares. Energy shares were roughly flat after retreating late in the week.
Story #2: Earnings season begins.The week kicked off the unofficial start of earnings season with 22 of the S&P 500 companies scheduled to report first-quarter results, according to Refinitiv. Overall sentiment seemed to get a boost from Wednesday’s release of earnings results from banking giants JPMorgan Chase, Goldman Sachs, and Wells Fargo. Analysts polled by both Refinitiv and FactSet currently expect overall earnings for the S&P 500 to have grown by roughly 25% in the quarter on a year-over-year basis, the most since the sharp cut in corporate tax rates that took effect in 2018.
Story #3: Positive vaccine news.Vaccine news also appeared to drive sentiment. On the negative side, U.S. regulators announced that they were suggesting a “pause” in Johnson & Johnson’s coronavirus vaccinations following rare reports of blood clots. On Thursday, however, investors seemed encouraged by Pfizer’s announcement that it could deliver 10% more of its vaccine by the end of May than earlier promised. Moderna said its vaccine was more than 90% effective at protecting against COVID-19 and more than 95% effective against severe disease up to six months after the second dose. So far there have been 833 million global COVID-19 vaccines administered since 1st vaccination in UK on Dec 8th, and at this rate global vaccinations are on pace to exceed 1 billion jabs in 6 days, on April 23rd.
Story #4: A set of strong US macro data.March retail sales grew by 9.8% y/y, the most since May. Gains were broad-based and reflected both the continued reopening of restaurants and other retail operations. Manufacturing data were exceptionally strong, with a gauge of mid-Atlantic factory activity hitting its highest level in nearly five decades. Weekly jobless claims came in at 576,000, well below expectations and a new pandemic-era low. The University of Michigan’s preliminary gauge of consumer sentiment also reached its best level (86.5) since the pandemic began but came in a bit below consensus expectations. On the inflation side, Headline consumer prices rose 0.6% in March, while core (less food and energy) prices rose 0.3%, both slightly above consensus expectations. Import prices rose 1.2% in the month, above forecasts.
Story #5: Technical factors drive bond yields lower.As mentioned in story #5, macro data were strong and news also continued to emerge about price pressures in parts of the economy affected by supply disruptions. For instance, rental car prices are increasingly dramatically as firms struggle to rebuild fleets because of slowed auto production, which is resulting in turn from the global chip shortage. But despite this background, U.S. Treasury yields fell over the week, with the 10-year Treasury note yield declining to 1.57% from 1.67% the previous Friday. It seems that stronger demand from Japanese investors and other technical factors such as macro hedge funds and CTAs covering their shorts are among the catalysts for the the bond rally. In addition, it is possible that upbeat economic data caused investors to reduce their expectations for more fiscal stimulus and, relatedly, Treasury issuance. Last but not least, inflation concerns may have been tempered by Fed Chair Jerome Powell’s interview on CNBC the previous weekend, in which he reiterated that policymakers would like to see inflation “on track to move moderately above 2% for some time.”
Story #6: European equities moved higher despite a pick-up in COVID infections.Shares in Europe rose on hopes of a strong recovery in the global economy and corporate earnings, despite a resurgence in coronavirus infections. The pan-European STOXX Europe 600 Index posted a seventh consecutive week of gains, rising 1.20%. German Chancellor Angela Merkel urged Parliament to approve new laws that would allow federal authorities to impose strict coronavirus restrictions, such as curfews, on areas with high infection rates. Data showed that infections were rising in Germany. On the other hand, England, which has vaccinated almost two-thirds of its population, started reopening shops, personal care services, and outdoor dining this week. France, Germany, and Italy began to accelerate their vaccination campaigns. On the macro front, Italy has raised its target for this year’s budget deficit to 11.8% of GDP from an 8.8% forecast made in January. The new target includes the impact of a EUR 40 billion stimulus package signed off by the cabinet.
Story #7: China Q1 GDP growth close to consensus at 18.3%The economy surged 18.3% year over year in the first quarter, albeit versus a very low base in 2020, when stringent shutdowns were imposed to contain the initial COVID-19 outbreak. Earlier in the week, China's Customs reported that exports rose 30.6% in March in U.S. dollar terms. Exports were a key growth driver for China in 2020. Despite the strong headline number, exports slowed in March on a two-year average comparison with 2019. Among the other March data prints, retail sales beat consensus estimates (33.9% versus 28%), while industrial production missed (14.1% versus 18%). Mainland investors appeared unsure whether strong GDP data would bring forward liquidity tightening or if disappointing March industrial production data would give the authorities cause to pause.
Story #8: China sentiment hurt by worries over worries over possible default of state-owned asset manager.The Shanghai Composite broad market index of A-shares fell 0.7% over the week to Friday. The CSI 300 large-cap index, with its higher weight in technology stocks, fell 1.4%. Consumer stocks rallied after a working paper from the government proposed fully lifting restrictions on family size. In China’s bond markets, rumors spread that state-owned asset manager Huarong Asset Management might fail to meet its upcoming bond payments. The price of Huarong’s bonds fell sharply but began to recover on Thursday after Huarong said it would repay an SGD 600 million bond in April. Contagion to other bonds (and equities) due to Huarong has been relatively mild, seemingly due to expectations that Beijing will step in with financial support for the prominent state-owned enterprise.
Story #9: Coinbase IPO drives cryptocurrencies higher.Coinbase IPO was this week big event. While the stock didn’t reach some of the whisper numbers, the $67 billon market cap (as of Friday close) is higher than the market cap of ICE (which includes the NYSE), the LSE and the Nasdaq. The IPO drives cryptocurrencies higher as the Bitcoin hit a new all time high, crossing the $64k mark for the first time, before pulling back slightly by the end of the week as Turkey decided to ban cryptocurrencies. Ether crossed the $2,500, a new all-time high. Altcoins such as Binance Coin, Litecoin, Ripple XRP or Cardano. The meme crypto Dogecoin was up 400% over the week.
Story #10: Record inflows into ETFsIn the first quarter alone, U.S. listed ETFs attracted more than $243 billion total, the biggest haul on record. More than $200 billion poured into equity funds alone. About 100 new ETFs have debuted so far in 2021, the best start to a year in at least a decade, according to data compiled by Bloomberg. That compares to 54 by this time in 2020 and 45 in 2019.
Source: T Rowe Price.