Weekly Market Performance – Down Week for the Markets
U.S. and international equities
The growth-laden Nasdaq Composite was this week’s relative laggard as traders took additional risk off. As we head toward the mid-year, the Nasdaq has lagged all other major U.S. indexes. Following strong performance last year supported by resilience in “stay at home” technology names, the technology sector has given way this year to cyclical/value names that can thrive during an early economic expansion.
Markets overseas fell this week, with developed international markets (MSCI EAFE) outperforming emerging market equities (MSCI EM). So far this year, the MSCI EAFE Index is outperforming the EM Index by over 6%.
“International stocks in developed markets may have their best chance in over a decade to sustain outperformance,” explained LPL Equity Strategist Jeffrey Buchbinder. “The strength in cyclical value stocks alongside tech sector weakness gives European and Japanese markets a fighting chance of keeping up with the U.S. as those economies fully reopen.”
Consumer staples led every S&P 500 Index sector this week. Some market participants noticed relative value in this sector given underperformance so far in 2021.
Earnings, earnings, earnings
With over 90% of S&P 500 companies reporting results, first quarter earnings are tracking to an almost 50% year-over-year increase. In addition, S&P 500 revenue is on track to increase 10% year over year, which is more than 4% above the March 31 estimate and the largest upside surprise FactSet has ever recorded. Given the favorable economic environment and impressive first quarter reports, LPL Research increased its 2021 S&P 500 earnings target to $187.50 to $190 per share.
Fixed income recap
Most fixed income sectors sold off this week as interest rates moved higher following this week’s Consumer Price Index (CPI) report. In a positive sign, prices firmed up on the 10-year Treasury during the Thursday and Friday trading sessions.
West Texas Intermediate (WTI) crude oil finished the week higher to mark its third straight week of gains. Natural gas, with its strong April performance, continued its marginal run higher for a second straight week. Copper prices continued to move higher as well, surpassing their 2011 all-time high. Even though gold underperformed copper for a second week in a row, the yellow metal continued to gain traction from inflation concerns and a weakening dollar.
U.S. Economic Data Recap
CPI surprises to the upside
The U.S. Bureau of Labor Statistics released April data for the Consumer Price Index (CPI) Wednesday. Headline CPI increased 0.8% month over month versus a consensus estimate of just 0.2%. Core CPI, which excludes volatile food and energy prices, jumped 0.9% month over month versus the consensus estimate of 0.3%
Year over year, headline CPI increased over 4% while core CPI increased 3%. This was the highest increase since 2008 for headline inflation and since 1996 for core inflation.
Much of the recent increase in inflation is attributed to supply chain challenges in the face of an increase in demand. Also note that the comparison to the year-ago period when much of the economy was shut down is inflating the year-over-year readings. This being said, we do believe that longer term inflation will remain contained. For more of our thoughts concerning inflation, please read our blog, Hot Inflation Data Jolts Investors.
Retail sales misses expectations
Retail sales were flat month-over-month in April, according to U.S. Department of Commerce data, missing the consensus estimate after handily beating expectations in March. Auto sales, which increased by almost 3% month over month, were a positive in the report. Restaurant sales were another bright spot, also increasing 3% month over month.
Initial jobless claims continue to decline
According to the U.S. Department of Labor, over 470,000 Americans filed for unemployment insurance last week, which was better than the Bloomberg consensus of 490,000 and a new pandemic low. Continuing claims were slightly higher than consensus as well as last weeks’ claims reading. Even given the improvement in initial claims, sluggish continuing claims suggests slack in the labor market.
Next week, the following economic data is slated to be released:
Monday: National Association of Home Builders’ May Housing Market Index
Tuesday: April building permits and housing starts
Thursday: Weekly initial and continuing claims, April leading indicators
Friday: Markit preliminary May Purchasing Managers’ Index data
Earnings season continues to wind down, with only 18 companies reporting earnings results next week.
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