Weekly Market Performance – Earnings Edge Lackluster Economic Reports
U.S. and International Equities
The major US markets were mixed this week, as strong gains in value-oriented sectors were partially offset by continued declines in the growth style. The Dow Jones Industrial Average had the best performance and, so far, have surpassed the S&P 500 Index for the year. Markets overseas finished higher, with both the developed international markets (MSCI EAFE) and emerging market equities (MSCI EM) gaining solid ground.
Energy Steams Forward For a Second Straight Week
Energy was again the top performing sector this week, completely reversing its position as the worst performing sector from two weeks ago. West Texas Intermediate (WTI) crude’s rebound along with natural gas’ recent performance has influenced the sector’s two-week run.
It’s a Material World
Materials had a solid week and have returned over 10% for the most recent rolling one month period, surpassing every sector. The sector benefitted from the continued commodities boom, a phenomenon discussed on the LPL Research blog.
Earnings, Earnings, Earnings
As readers of past Weekly Market Performance blogs have seen, 2021 Q1 earnings reports have been exemplary. Approximately 88% of the S&P 500 have now reported their Q1 earning results. Over 80% of reports have surpassed consensus earnings per share expectations, which is a record high. Moreover, in aggregate, companies are beating expectations by over 20%.
“The amount of upside to earnings estimates this quarter was truly amazing,” stated LPL Equity Strategist Jeff Buchbinder. “Even as the earnings bar was raised higher, corporate America delivered.”
Fixed Income Recap
Fixed income sectors were broadly positive as interest rates moved lower on the week. However, on Friday after an initial spike down following the release of the jobs report, the 10-year Treasury yield reversed to close higher on the day.
West Texas Intermediate (WTI) crude oil finished the week over 1%. Natural gas, with its strong April performance, gained a fraction this week. Copper prices continued to trend higher as well, coming within just a few percent of the 2011 all-time highs. Though gold underperformed copper, it benefitted from falling rates and a weaker dollar, climbing above $1800/oz. for the first time since February.
U.S. Economic Data Recap
Jobs Growth Disappoints Amid Lofty Expectations
According to the U.S. Bureau of Labor Statistics, the US economy gained over 260,000 new jobs in April, widely short of the Bloomberg consensus estimate for 1,000,000 new jobs. In addition, the April unemployment rate increased 0.1% to 6.1%. “The job market got a bit of a reality check this morning”, said LPL Chief Market Strategist Ryan Detrick. Check out our blog post for full details why we believe the factors suppressing today’s numbers should wear off over time.
ISM Purchasing Managers’ Index
The Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index showed a slight decline in growth last month. The reason for this isn’t necessarily a slowdown of the economy, but it could indicate some lingering issues in the supply chain due to COVID-19.
The survey noted shortages in raw materials, rising commodity prices, and companies having challenges in meeting customer demand. In addition, transportation difficulties were mentioned as being roadblocks to growth in the PMI as well.
Treasury Secretary Janet Yellen on Tuesday suggested that rates may have to modestly increase to keep the economy from overheating. Her comments Tuesday led to pressure on the technology sector given that higher interest rates could have an effect on current share valuations.
Market participants are not expecting the Federal Reserve (Fed) to raise rates at least until after 2023, and Yellen walked her comments back later in the week. LPL Research continues to believe that inflation pressures will prove to be transitory, though we recognize in the near-term pent-up demand and supply shortages may continue to put short-term pressure on prices.
Initial Jobless Claims Continue to Decline
According to the U.S. Department of Labor, over 490,000 Americans filed for unemployment insurance last week, which was better than the Bloomberg consensus of 540,000. Continuing claims were slightly higher than consensus as well as last weeks’ claims reading. Even given the improvement in initial claims, sluggish continuing claims suggest slack in the labor market.
Next week, the following economic data is slated to be released:
Tuesday: April National Federation of Independent Business (NFIB), March Job Opening and Labor Turnover Survey (JOLTS)
Wednesday: April CPI, April hourly earnings and workweek statistics, April Treasury budget
Thursday: Weekly initial and continuing claims, April Producer Price Index
Friday: April export and import price data, retail sales, industrial and manufacturing production, May business inventories, and May Michigan sentiment
As we head toward the end of first quarter earnings season, next week over 20 companies will report earnings results.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
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