U.S. and International Equities
The major US markets were mostly lower this week. Some sectors were unable to overcome concerns about higher capital gains tax rates in the wake of positive earnings results. Markets overseas finished lower, with both developed international markets (MSCI EAFE) and emerging market equities (MSCI EM) giving back ground.
Energy Steams Forward
Energy was the top performing sector this week, completely reversing its position as the worst performing sector from a week ago. West Texas Intermediate (WTI) crude along with natural gas’ recent performance has influenced the sector’s performance.
Earnings, Earnings, Earnings
As earning results have been reported, S&P 500 earnings per share (EPS) estimates for the next 12 months have increased by almost 4%. When looking overseas, developed international markets (MSCI EAFE) and emerging markets (MSCI EM) 12-month forward earnings expectations have both strengthened about 5%. Year to date, 2021 earnings growth estimates for all three indexes have risen over 10 percentage points.
While developed international earnings were hit harder than the US and the emerging markets during COVID-19, we believe the earnings gap may begin to narrow.
“Although we expected a solid earnings season, little did we realize that companies would beat the high bar with relative ease,” explained LPL Financial Chief Investment Officer Burt White. “In fact, in the U.S. companies are beating earning expectations at a record pace, but the good news is the rest of the world is seeing explosive growth as well.”
Fixed Income Recap
Bonds, as represented by the Bloomberg Barclays U.S. Aggregate, lost marginal ground this week as the 10-year Treasury yield moved slightly higher, reversing its three week run. High yield bonds, as denoted by the Bloomberg Barclays High Yield index, gained ground this week, reversing last week’s decline.
West Texas Intermediate (WTI) crude oil reversed course from last week to finish the week higher. Copper enjoyed another strong week as industrial metals shine as the economy reopens. DXY, the U.S. Dollar Index, strengthened this week, reversing its two-week decline.
Natural Gas Ignites in April
Natural gas has seen the vast majority of its 2021 gains this month, returning over 7% just this week. Production declines along with pipeline maintenance have influenced prices. Moreover, current natural gas inventories presently remain below the 5-year historical average.
U.S. Economic Data Recap
The Bureau of Economic Analysis reported that the US economy grew over 6% in the first quarter but slightly less than the Bloomberg consensus forecast. Personal consumption, which is the largest part of the economy, increased over 10% and grew at its second fastest pace since the 1960s.
This week, the Federal Reserve (Fed) reiterated its present monetary policy stance and kept the Federal Funds Rate near zero. In addition, the Fed is planning to continue its quantitative easing efforts. Fed Chair Jerome Powell stuck to his talking points in his press conference, stating that rising inflation was due to transitory factors and that the economy would need to make substantial progress before the Fed would consider reversing present monetary policy.
Jobless Claims Continue to Decline
According to the U.S. Department of Labor, over 550,000 Americans filed for unemployment insurance last week, which was slightly higher than the Bloomberg consensus. Continuing claims were slightly higher than consensus but improved slightly over the previous week. Overall, the data still suggests marginal improvement in the labor market.
Next week, the following economic data is slated to be released:
- Monday: March construction spending, April Institute for Supply Management report
- Tuesday: March trade balance, March durable goods and factory orders, March wholesale inventories, April Markit Manufacturing Purchasing Managers’ Index
- Wednesday: March Markit Services Purchasing Managers’ Index, April Institute for Supply Management Non-Manufacturing index, April ADP employment survey
- Thursday: Weekly initial and continuing claims, Q1 Unit Labor Costs and Productivity
- Friday: April Unemployment Rate, April nonfarm and manufacturing payrolls, April hourly earnings and average workweek
First quarter earnings season will continue with more than 130 companies reporting earnings results.
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Source: LPL Research