Thursday, 15 April 2021

Equities indices pencil in another strong week, with the S&P 500, Nasdaq, and Dow Jones returning at least 1.5%. 

Stocks

The Russell 2000 underperformed, returning 0.7%; however, it is still the highest returning index of the year, up 14.6% YTD. Strong equity returns can be attributed to a few key factors: Faster than expected vaccination rollout allowing for accelerated state re-openings, reduced volatility in the bond market, and better than expected earnings reports that already had high expectations. In fact, 34 companies in the S&P 500 have reported first-quarter earnings. Of those, 88% have beaten their 1Q 2021 EPS estimates by an average of 22%. While the IPO/SPAC trend has cooled recently, Coinbase ($COIN) made its market debut on Wednesday in a watershed moment for the cryptocurrency market. The company had a successful direct listing on the Nasdaq at a valuation of $86 billion.  

Bonds

After a month-long consolidation, bonds have had their best week of the year in the face of very positive economic data. In a move that has puzzled traders, the 10-year Treasury yield moved lower as much as 10 basis points on the day around the same time the retail sales number hit 9.8%. This week’s move in rates also saw the largest decline in the 2s-10s spread since June 2020, signaling a potential flattening of the yield curve. Municipal bonds continue to outperform likely due to potential tax increases on the horizon – the Barclays Muni index returned 0.6% this week while the Barclays AGG returned 0.1%. 

Economy

As mentioned previously, it was a great week for economic data. First-time unemployment claims fell last week to a pandemic low of 576,000, a reduction of 193,000 from the previous week. Retail sales increased by 9.8%, thanks to bar/restaurant spending seeing a 13.4% increase and sporting goods spending surging to 23.5%. In an interview with 60 minutes, Fed Chair Powell echoed both his recent optimism about the economy and a now-familiar warning that the COVID-19 pandemic had not yet been fully defeated. "There really are risks out there. And the principal one just is that we will reopen too quickly, people will too quickly return to their old practices, and we'll see another spike in cases.“ Despite Powell’s cautious remarks, the probability for a rate hike in December has moved to 14% from just 2% a month ago. 

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Read the full April 15, 2021 report with accompanying charts and graphs. 

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