Read the 10 stories to remember from the week which ended April, 30th 2021.
Story #1: Stocks touch record highs as investors focus on earnings reports
The major indexes ended mostly lower, but the S&P 500 and the Nasdaq reached new highs before surrendering their gains on Friday. Returns among stocks varied widely as investors reacted to a flood of first-quarter earnings reports, although a rise in oil prices to six-week highs provided a general boost to energy stocks. Communication services shares outperformed within the S&P 500, helped by earnings and revenue beats from Facebook and Alphabet (Google). Technology stocks underperformed, weighed down by a decline in Microsoft despite the company reporting earnings that exceeded consensus estimates. Health care shares underperformed.
Story #2: The busiest week of US first-quarter earnings season
180 constituents of the S&P 500 expected to report results, according to Refinitiv. Since the start of the reporting season, 60% of the companies in the S&P 500 have reported actual results for Q1 2021 to date. Of these companies, 86% have reported actual EPS above estimates, which is above the five-year average of 74%. If 86% is the final percentage for the quarter, it will mark the highest percentage of S&P 500 companies reporting a positive EPS surprise. In aggregate, companies are reporting earnings that are 22.8% above the estimates, which is also above the five-year average of 6.9%. If 22.8% is the final percentage for the quarter, it will mark the second-highest earnings surprise percentage reported by the index since FactSet began tracking this metric in 2008.
Story #3 Commodities and stocks outperformed in April
April saw gold, bonds, and stocks (The Dow) all rise around 2% while the dollar fell around 2% against its fiat peers. All major US equity indices ended April higher with Nasdaq 100 leading the way and Small Caps lagging. Financials managed to lead the S&P sectors on the month (despite lower yields) and the Energy sector was laggard (despite surging oil prices). Treasury yields were lower on the month with the long end down 11bps while 2Y Yield was unchanged. This was the first monthly drop in yields since November (and biggest 10Y Yield drop since July). April saw Real Yields tumble (and drag gold higher with them). April saw the dollar on a one-way dump all months, ending down almost 2% - the first monthly loss since Dec 2020. After reaching record highs at $65,000, Bitcoin saw its first monthly loss since September. Ethereum ended the month at its record highs. Commodities soared in April, recording their best monthly return since February 2014. Copper was among the best performers in April - back near record highs - and crude also performed well. Gold saw its first positive month of the year.
Story #4: US real GDP advanced by 6.4% in Q1
On Thursday, the US Commerce Department reported that GDP expanded at an annualized rate of 6.4% in the first quarter, supported by a healthy increase in government spending. In other positive news, weekly jobless claims fell to a pandemic-era low of 553,000, and the Conference Board reported that its index of U.S. consumer confidence in April hit its highest level (121.7) since February 2020. Manufacturing signals also remained strong. Core (excluding defense and aircraft) capital goods orders rose 0.9% in March, reversing a 0.8% drop in February.
Story #5: Powell promises rate increases are not on the horizon
Markets did not appear to react strongly to the outcome of the Federal Reserve’s policy meeting on Tuesday and Wednesday, although the firm’s traders noted that stocks reversed earlier gains after Fed Chair Jerome Powell referred to “froth” in equity markets in his post-meeting press conference. Nevertheless, Powell reiterated that the Fed would wait for “some time” before raising rates, while also saying that policymakers were not ready to begin planning for a reduction in asset purchases.
Story #6: A modest increase in bond yields as dovish Fed offset strong macro numbers
The solid economic data pushed the yield on the benchmark 10-year Treasury note higher for the week, but our fixed income traders noted that the generally dovish tone of Powell’s press conference on Wednesday appeared to help moderate the increase. Core eurozone bond yields trended higher on the back of higher-than-expected German inflation data.
Story #7: Mixed picture on the Pandemic front
Progress in combating the pandemic in the US seemed to encourage investors. Daily case numbers suggested that the “fourth wave” of infections was receding, President Joe Biden announced eased restrictions on wearing masks outdoors, and the mayor of New York City said that the city would completely reopen on July 1. The situation elsewhere, particularly in India, remained more concerning, and the U.S. announced that it would send 60 million doses of stockpiled AstraZeneca vaccine doses abroad. The WHO said the threat from the coronavirus “remains present” in Europe. French President Emmanuel Macron announced a four-step plan to begin lifting coronavirus restrictions on May 3, with the aim of removing most restrictions and the nighttime curfew by the end of June.
Story #8: European equities ended the week little changed as the Eurozone may have entered recession
The pan-European STOXX Europe 600 Index ended the week 0.38% lower. The eurozone economy may have entered a recession, as preliminary seasonally adjusted data estimated that first-quarter GDP decreased by 0.6% after contracting by 0.7% over the preceding three months. Germany’s economy contracting by 1.7% was the main driver of this weakness and reflected the imposition of additional lockdown restrictions. Despite the slowdown, eurozone inflation accelerated to 1.6% in April 2021—up from 1.3% in March—mainly due to higher energy costs. In Germany, the inflation rate quickened to 2.1%. However, optimism about the outlook for the eurozone economy strengthened in April due to the rollout of vaccination campaigns. Sentiment strengthened markedly in manufacturing and turned positive in services. Optimism also grew among consumers.
Story #9: Chinese shares declined as the government continues to crackdown technology firms
Over the week, the large-cap CSI 300 Index declined 0.2%, while the Shanghai Composite Index shed 0.8%. Slightly weaker-than-expected PMI readings for April disappointed investors. Additionally, reports that a state-owned asset manager was selling positions in growth stocks and that several state banks were delaying the release of their 2020 financial results gave investors little incentive to buy ahead of a three-day Labor Day holiday. China’s tech sector remained under a regulatory cloud after Beijing imposed wide-ranging restrictions on the financial divisions at 13 well-known internet companies, including Tencent and TikTok developer ByteDance. Online retailer JD.com, e-commerce platform Meituan, and ride-hailing company Didi were also summoned to a meeting with several of the country’s watchdogs, including the central bank.
Story #10: A volatile week for cryptos but new All Time Highs for Ethereum, Binance
Several cryptocurrency exchanges in Turkey stopped operating or experienced financial difficulties in the wake of the central bank’s announcement at mid-month that using digital currencies as a form of payment will be forbidden, effective April 30. With Turkish authorities and regulators investigating possible fraud related to at least one of the cryptocurrency operators, the government may attempt to use this situation as an opportunity to stop Turkish citizens’ active use of digital currencies as a store of value—due to low confidence in the lira—or as a regulatory arbitrage instrument. This negative newsflow brought some volatility on cryptocurrencies at the start of the week but didn’t prevent some cryptocurrencies such as Ethereum, Binance or Uniswap to reach new all-time highs. Bitcoin managed to come back above $55k (and above the $1 trillion capitalization) by the end of the week.
Source: T Rowe Price, Investopedia, www.zerohedge.com