Dow climbed 297 to a new record with buying in the last hour, advancers slightly ahead of decliners & NAZ went up 70. The MLP index fell 2+ to the 168s & the REIT index was even in the 409s. Junk bond funds fluctuated & Treasuries continued to experience selling. Oil dipped in the 39s & gold pulled back 14 to 1743 (more on both below).
AMJ (Alerian MLP Index tracking fund)
Inflation data around the end of this year will be key to whether the expected uptick in inflation in coming months is transitory or long-lasting, said Fed Vice Chair Richard Clarida. Fed Chair Jerome Powell has said that inflation could pick up this year due to bottlenecks but that this price pressure would not persist. Clarida said the Fed's forecast is that inflation will move above 2% for a time this year and “for inflation to return later this year to around 2%.” “We would expect those to be transitory and as the year progresses and we go into next year, if they’re not, then we’ll have to take that into account certainly,” Clarida added.
Gold futures retreated a day after the biggest daily gain of the month, weighed down by a rise in bond yields & a strengthening $. For the week, however, gold booked a weekly advance, with investors wading into precious metals with some eye toward protecting themselves against choppiness in the stock market, as the global economy attempts to stage a fuller recovery from the COVID pandemic. Jun gold fell $13 (0.8%) to settle at $1744 an ounce. It ended 1% higher yesterday to mark the highest finish for a most-active contract since Feb 25 & largest one-day $ & % climb since Mar 31. In economic news, the Labor Dept reported that the producer price index (PPI) rose 1% in Mar & the rate of wholesale inflation over the past 12 months climbed to 4.2% that month, the highest since 2011. Gold prices fell toward the session lows after the PPI data, then pared some of those declines.
The latest wave of market enthusiasm has brought with it a stunning rush of money, in which more investor cash has gone to stock-based funds in the last 5 months than the previous 12 years combined. That statistic, from Bank of America (BAC), reflects a period in which the Dow has risen more than 26%. At the same time, the market has undergone some wild trends that included a massive influx to meme stocks. Trading volume rose 40% in Q1 from the previous 3 months, with investors snapping up sectors that performed poorly last year amid hopes for a pronounced economic rebound from the Covid-induced slide in 2020. Amid the frenzy, some $569B has gone to global equity funds since Nov, compared with $452B in the previous 12 years that go back to the beginning of the longest bull market run in history. Those numbers easily could exacerbate ongoing worries about financial market bubbles as valuations are around the same levels as just before the dot-com bubble popped in 2000. But these are not ordinary times. Q1 earnings season kicks into gear next week & sentiment is running high. Year-over-year profits are expected to expand by 23.8%, which by itself would be the best growth rate since Q3-2018. However, what’s even more remarkable is that analysts continue to ratchet up expectations as the profit reports near, which is the opposite of what usually happens. Analysts generally trim outlooks the closer they get to the report date. Thru the qtr, earnings estimates have risen 6% to $39.86 for the S&P 500 as a whole. That’s the largest percentage gain in a qtr since tracking the metric began in 2002. At the same time, expectations are running high for economic growth. GDP is projected to rise 6.2% in Q1, according to the Atlanta Fed. For the year, central bank officials expect growth of 6.5%, which would be the fastest annualized gain since 1984. The S&P 500 is trading at 20.4 times forward earnings, which is actually below the 22.8 multiple at the close of 2020 but still around levels associated with the dot-com bubble. Yet, more than ½ of global stocks are still trading below their record highs.
Small business closures across the US & the world are creeping back toward their pandemic peaks, according to a report from Facebook (FB) & the Small Business Roundtable. It continues to be a very painful time for small businesses,” John Stanford, co-exec director of the Small Business Roundtable, said. The report, which surveyed over 35K small & medium-size businesses across the world, found that 22% of US small businesses were closed in Feb. Those figures were up from Oct's 14%. At the peak in May, the pandemic saw 23% of small & medium-size businesses closed — only 1 percentage point higher than the current closure rate. While the overall closures are nearing Covid highs, the report found that different areas of the country were experiencing varying degrees of difficulty. Some states, like Maine, Idaho & Colorado, were seeing 9%-10% closures, while others like New York, Pennsylvania & Massachusetts were seeing at least 30% closed. Within states, the report also found that certain demographics were getting hit harder than others: 27% of minority-led small & medium-size businesses reported closures, compared with 18% of others. Female-led businesses saw 25% closure rates, while 20% of male-led businesses closed. Small & medium-size businesses are continuing to see the impact of the pandemic despite a relative bounce back for larger corps. “Small businesses are really our front-line defense for the business community,” Stanford said. “They feel impacts first, and those impacts stay the longest.” “So while larger companies with larger capital reserve may be doing OK, small businesses can’t just take the risk to stay open, and I think we’re seeing that play out with these high numbers,” he added.
Oil futures ended lower, with concerns about growing supply & weakening appetite for energy, as global cases of COVID rise in Europe, Brazil & India in particular, prompting prices to post a loss for the week. West Texas Intermediate crude for May fell 28¢ (0.5%) to settle at $59.32 a barrel. Global benchmark Jun Brent crude edged down 25¢ (0.4%) at $62.95 a barrel. For the week, WTI oil finished 3.5% below the Apr 1 settlement, which marked the end of that holiday-shortened trading week. Brent marked a loss of 2.9%. Energy markets have also been influenced by the decision of members of OPEC & its allies (OPEC+) in a recent meeting to slowly unwind output curbs. OPEC+, which includes Saudi Arabia & Russia, agreed to gradually increase oil production by about 2M barrels a day between May & Jul. Energy traders are anticipating that demand will be strong in H2-2021 but questions about COVID variants & troubles with the AstraZeneca vaccine (AZN) have raised some questions about how quickly an economic rebound will take hold in some countries.
The dark cloud of high inflation is in the sky for everybody to see, but investors are not worried. Next week will bring Q1 earnings reports & expectations are running high. Those results will move stocks as the Dow nears 34K today.
Dow Jones Industrials