- Equity markets continue to set new records as the Nasdaq plays catch up.
- Fundamentals are backing bulls as Fed doves dampen inflation concerns.
- Earnings week ahead will likely add more fuel to the fire.
Another week another record-shattering performance from US equities. All sectors remain strong but mega-cap tech and the Nasdaq, in general, outperform the border market. This is a natural breakout as these sectors had lagged for most of February and March.
Inflation concerns were put to one side for the last few weeks as the ten-year yields calmed and Fed officials spoke glowingly about growth and employment prospects. Investors have also been resetting their pain tolerance for inflation and have discovered a little can not hurt too much.
Retail investor flows also seem to be continuing to diminish. This appears correlated to the re-opening of the economy as young retail traders turn away from their screens. Call option volume has been steadily diminishing, which has been a steady feature of retail traders. Volatility across the meme stock universe also continues to fall and the VIX briefly dipped below 17 earlier on Friday.
The Nasdaq topped the weekly performers with a gain of 3.12%, the Dow was up 1.96% for the week, while the S&P 500 was up 2.7%.
Backing the strong equity performance is data from Bank of America showing that equity fund inflows in the last quarter, with a few since November, have been higher than the previous 12 years combined. Wow, now let's think about that for a second. Twelve years is a long time and in five months we have surpassed the previous total for 144 months.
This does set bubble alarm bells ringing.
However, the previous 12 years included the biggest financial meltdown in history! What we have seen since the financial crash are incredibly expansive policies with massive central bank stimulus, money printing, and zero interest rates. The pandemic has further added with more stimulus. Basically what we are seeing is huge stimulus by central banks being pumped into global stock markets as yields and alternatives are virtually zero.
Corporates have reacted accordingly and borrowed and restructured their debt and balance sheets to take advantage of the free cash and as a result, have been able to produce strong outcomes.
Next week is due to see further evidence of this as we get Q1 2021 earnings season right off the blocks. Earnings growth is expected to be strong. Refinitiv data shows how impressively expectations have grown over the last six months as the economic backdrop improves.
This chart is showing expectations for just Q1 2021. Since October 2020, expectations for the coming earnings season have almost doubled, from 12% earnings growth to nearly 22%.
Interestingly enough, Refinitiv notes that Industrials have seen the largest reduction in expected earnings growth, but can President Biden's infrastructure plan help turn the sector around?
Bank stocks lead the earnings season kick-off so keep an eye on the Financial sector XLF versus the rest!
2021-04-14 Before Market Open Goldman Sachs Group
2021-04-14 Before Market Open Wells Fargo
2021-04-14 Before Market Open Bed Bath & Beyond
2021-04-15 Before Market Open Citigroup
2021-04-15 Before Market Open PepsiCo
2021-04-15 Before Market Open BlackRock
2021-04-15 Before Market Open UnitedHealth Group
2021-04-15 Before Market Open Delta Air Lines
2021-04-15 After Market Close Alcoa
2021-04-15 Before Market Open Bank of America
2021-04-15 After Market Close PPG Industries
2021-04-15 Before Market Open Rite Aid
2021-04-15 Before Market Open US Bancorp
2021-04-16 Before Market Open Ally Financial
2021-04-16 Before Market Open Bank of New York Mellon
2021-04-16 Before Market Open Morgan Stanley
2021-04-16 Before Market Open State Street
2021-04-16 Before Market Open Kansas City Southern
2021-04-16 Before Market Open Citizens Financial Group
2021-04-16 Before Market Open PNC Financial Services Gr
Source: Benzinga Pro
Expectations are high, markets are bullish so it will need a strong outperformance to perhaps keep the bullish show on the road. Either way we have plenty to keep us occupied.
Monday sees another Fed member take to the pulpit, or a virtual one perhaps as Boston Fed President Rosengren speaks at 1300 EST.
Tuesday will see some fun as inflation will creep back into the consciousness with the release of US CPI. Friday’s PPI showed just how hot things could get as PPI was well ahead of priors and expectations. Monthly CPI is expected to grow by 0.5% and annual by 2.5%.
Wednesday is quiet on the economic front apart from the Beige book. However, we do get results from JPMorgan and Goldman.
Thursday is as usual Jobless Claims day. Also hitting the tape is Philly Fed expected to be 43 and Retail Sales for March. Bank of America, Pepsi, Delta Air Lines, and Citigroup top the bill earnings-wise.
Friday sees Housing Starts data for March and earnings from Morgan Stanley.
S&P 500 technical analysis
The trend is your friend and it certainly is if you are long! This week has seen inflation concerns take a back seat and that paved the way for continued records across the main indices. The Fed continues to act and talk doveishly and President Biden continues to come up with stimulus plans. This time it is the turn of infrastructure. The S&P 500 broke sharply higher and extended into the close on Friday. We are trading comfortably above 9 and 21 day moving averages. At record highs, there is no resistance in sight. The pivot and key to the maintenance of the bullish trend is 3983 where we struggled before blasting through. MACD remains bullish but widening. RSI is close to overbought but RSI is not good at signaling overbought conditions in indices as they can trend higher for years. RSI is much more beneficial at showing oversold conditions in relation to equity indices. Earnings season will provide more fundamental data to back up the technical picture next week. But the trend is clearly bullish and it will take a lot to change this.
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