U.S. and International Equities
The major United States markets were mostly higher this week. The Nasdaq Composite was the best performing index while the Dow Jones Industrial Average gained over 1%. The small cap Russell 2000, the best performing major U.S. index this year, pulled back a fraction, most likely due to profit-taking. The Russell 2000 is up over 100% from its March 18, 2000 bear market low. Developed international stocks (MSCI EAFE) gained over 1% while emerging market equities (MSCI EM) lost ground.
Energy Running Out of Steam in April
For the second week in a row, the communication services, information technology, and consumer discretionary sectors were the S&P 500 Index’s best performing sectors.
The energy sector, which began its ascent during Q4 last year, is the worst performing sector this week and over the last month. The sector has generally tracked the price of West Texas Intermediate crude oil (WTI) crude over these time periods. Nevertheless, energy remains the best performing sector year to date.
Real estate is showing signs of life this year compared to 2020. This sector has enjoyed one of the best rolling one month returns so far through today. Residential real estate has witnessed a renaissance given COVID-19-related demand, lower interest rates, and demographic changes, but with additional reopening on the horizon, it appears that its commercial counterpart is starting to catch up.
Fixed Income Recap
Bonds, as represented by the Bloomberg Barclays U.S. Aggregate, gained ground this week as the 10-year Treasury yield moved slightly lower. High-yield bonds, per the Bloomberg Barclays High Yield Index, moved slightly higher for the second straight week, benefiting from the risk-on environment and limited rate sensitivity. In addition, high-yield muni bonds, per the Bloomberg Barclays High Yield Muni Bond Index, have been the standout fixed income asset class, returning over 3% this year.
Commodities Reverse Course from Last Week
WTI crude oil along with natural gas pulled back this week after posting gains the week prior. In addition, gold, silver, and copper finished higher after the precious metals ended lower last week. DXY, the U.S. Dollar Index, sold off marginally this week, but is still up almost 2.5% for the year.
U.S. and International Economic Data Recap
Job Growth Shows Major Signs of Improvement
The labor market grew the most in seven months in March. U.S. nonfarm payroll growth surged last month as the labor market added over 900,000 jobs, surpassing analysts’ consensus estimate by over 250,000 jobs. Moreover, the labor force participation rate rose while the unemployment rate fell to 6%. Average earnings dropped slightly, but this may just signal lower wage workers rejoining the workforce. Hospitality and leisure along with construction and education services saw the largest job gains.
Business Conditions Improve
The Institute of Supply Management (ISM) Purchasing Managers’ Index (PMI) jumped last month, remaining at an expansionary level and topping the consensus estimate. The ISM Services PMI beat expectations as well. The effects of easing COVID-19 restrictions, increase vaccine distribution, and fiscal stimulus are all contributing to improving business conditions in the U.S.
“A good payrolls number helped set the table for stocks, and the outsized ISM Services number added to the recent slate of good economic news,” explained LPL Research Senior Vice President and Director of Research Marc Zabicki. “Anticipation of what is expected to be a notably strong earnings season, and some ease in interest rates also contributed to the positive sentiment”
Global GDP Forecasts Improve
As we continue to slowly turn the corner on the global pandemic, worldwide economic growth is expected to continue to improve. The Bloomberg consensus 2021 GDP growth forecast is for economic activity to increase over 5% worldwide, while the U.S. consensus is for 6% growth.
Accelerating vaccine distribution and the $5 trillion in fiscal stimulus are both clearly contributing to U.S. growth. While the U.S. stimulus is comparable in size to Europe’s, our stimulus consists of more direct payments and spending, which appears to have been more impactful in our economic recovery than Europe’s more widespread use of loan guarantees. For more of our thoughts on the global GDP story please read the LPL Research blog post Global Growth Expectations on the Rise.
Jobless Claims Lag
According to the U.S. Department of Labor, over 740,000 Americans filed for unemployment insurance last week, above the FactSet consensus forecast, which called for 660,000 new claims. Continuing claims inched lower but were higher than expected. This week’s elevated jobless claims data continues to underscores volatility in the labor market.
Next week, the following economic data is slated to be released:
- Monday: March’s Treasury Budget
- Tuesday: March Consumer Price Index and labor workweek statistics
- Wednesday: March Federal Reserve (FED) Beige Book and export/import prices
- Thursday: Weekly initial and continuing claims, March retail sales and industrial/manufacturing production, February business inventories, April National Association of Home Builder’s Housing Market Index
- Friday: March housing starts and building permits, Michigan sentiment
Q1 Earnings Season will begin next week with several large financial firms reporting results.
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