Gradient Investments Weekly Talking Points 05/03/2021. All data is for the week ended April 30, 2021.
Stocks
Earnings reporting season is in full swing and (with 60% of the companies in the S&P 500 reporting actual first quarter results so far) 86% of S&P 500 companies have reported a positive earnings per share (EPS) surprise. The estimated earnings growth rate for this past quarter was 23.8% at the end of March, but the blend of actual earnings growth reported so far plus the estimates for those which have not yet reported is 45.8%.1
The S&P 500 reached a record high last week, ending with a 0.04% gain. The Russell 2000 eased down 0.23% and the NASDAQ (having also reached a record high during the week) finished with a 0.38% decline. Overseas, international developed markets (MSCI EAFE) declined 0.74% and emerging markets (MSCI EM) weakened by 0.37%. Energy and communication services were the best performing sectors in the U.S. while technology and health care lagged.2
Fixed Income
Interest rates rose as values fell, with the 10-year treasury yield rising 7 basis points to end the week at 1.65%3 after the strong GDP report (see below) and the Federal Reserve assured that they will respond with higher interest rates when inflation proves to be more than transitory.4
Commodities
Oil prices rose last week on an improving outlook for global demand as the major economies appear to be in recovery mode from the pandemic. The price of West Texas crude rose 2.3% to $63.58 per barrel.5 However, there are still concerns over higher supply from OPEC+ after they decided to continue with their prior plan to boost supply slightly, beginning this week.6
Economic Data
First quarter economic growth (GDP) in the U.S. was 6.4% on a quarter-over-quarter basis annualized, just a hair shy of the recent consensus estimate. Growth was led by a 10.7% increase in consumer spending and a 6.3% hike in government spending.7
Personal income jumped 21.1% in March while consumer spending grew 4.2%, well ahead of the 1% spending decline in the prior month. The personal savings rate jumped to 27.6%, the highest in over 60 years. These growth rates were driven by government payments as a part of the COVID-19 relief efforts since the monies were distributed in March. Core inflation was 1.8% on a year-over-year basis.8
The April survey of consumer sentiment was 88.3, a 3.4 point gain from March, showing continued monthly gains due to rising confidence in the momentum seen in jobs and incomes. This is due to record federal stimulus spending, both recently passed and proposed, as well as the positive impact from the rollout of COVID vaccinations.9
Orders for long-lasting (durable) manufactured goods in the U.S. rebounded last month but grew slower than expected, weighed down by a global chip shortage and weaker demand for commercial aircraft.
Orders rose 0.5% versus February versus expectations of a 2.3% gain, but when transportation is excluded, orders rose 1.6% — in line with the consensus estimate.10
Company News
Apple Inc. (AAPL), a G33 and Core Select holding, announced revenues and earnings that beat expectations and guided full year revenues ahead of estimates. Management also accelerated its capital spending plans to $430 billion across the U.S. during the next five years. The board authorized a 7% dividend increase and added $90 billion to their share buyback program. Shares declined 2.1 % for the week.12
Facebook (FB), a G33 and Core Select holding, reported far stronger revenues and earnings than expected as ad revenues rose 46% and other revenues gained 146%, boosting operating margin by 10 points. Shares rose 7.8% for the week.13
United Parcel Service Inc. (UPS), a G50 holding, reported revenues and earnings that far exceeded expectations including volume growth of 14% and earnings per share growth of 141%. Shares rose 13.9% for the week. 14
Did you know …Boston has hidden poems on its sidewalks that are only visible when wet. The spray used to write the poems is invisible. When it rains, pedestrians are treated to the work of Langston Hughes and other poets with ties to Boston.
Sources:
1 FactSet Earnings Insight 4-30-21
2 JP Morgan Weekly Market Recap 5-3-21
3 US Treasury
4Rev.com, “Federal Reserve Chairman Powell Press Conference Transcript 4-28-21” (time 23:58)
5 Oilprice.com
6 Reuters, “Oil Holds Near $67 as Demand Hopes Balance India Concern” 5-2-21
7 Bureau of Economic Analysis 4-29-21
8 Bureau of Economic Analysis 4-30-21
9 University of Michigan press release 4-30-21
10 US Census Bureau 4-26-21
11: All weekly changes in company stock prices: Yahoo Finance
12 Apple Inc. press release 4-28-21
13 Facebook press release 4-28-21
14 UPS press release 4-27-21
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