Capital 19 Catch-Up

Nasdaq Recovers As The Airlines Take Off For Flight

Last week was a week much like the previous one, but the result was very different for the Nasdaq composite index which managed a gain of 3% despite bond yields finishing at year highs on Friday. On Monday the tech-heavy index had hit correction mode, after falling more than 10% from recent highs. However, as the week progressed Wall Street seemed to come to terms with the whipsawing bond prices, easing pressure on the technology stocks while still advancing the cyclical names who are reliant on a recovering economy.

The Dow has been the beneficiary of the resurgence in cyclical stocks. It was up another 4% this week, adding to its 1.8% gain from last week, and finishing at all-time highs. Boeing (BA) was the main contributor. The planemaker was up 6.82% on Friday alone, and up more than 18% for the week. It led a fightback amongst the entire airline industry who are desperate for people to start flying again. United Airlines (UAL), Southwest (LUV), and American Airlines (AAL) all made big moves during the week, and the industry is now one of the best performing so far in 2021.

The S&P500 also managed its own closing record on Friday, finishing 2.6% higher over the five sessions. The Russell 2000 small-cap index was the best performer, however, gaining an impressive 7% and taking its 2021 gains to more than 20%. It’s being led by the smaller stocks that require a sharp economic bounce back to perform. It’s certainly helping our Top 30 strategy which is having another cracking month after also outperforming in January and February. It’s looking like it will be another blowout quarter for the portfolio.

The Semiconductor stocks also got a boost during the week as The Chinese Semiconductor Industry Association announced it would be establishing a working group with its US-based counterpart the Semiconductor Industry Association based in Washington. Each side will be represented by ten chip companies and come together to discuss such subjects as intellectual property, trade policy, and encryption. The VanEck Semiconductor ETF (SMH) gained 4.2% on the news, while Nvidia (NVDA) and AMD (AMD) both jumped more than 4%. Taiwan Semiconductor (TSM) was also up more than 8%.

The $1.9 trillion covid recovery bill was finally passed by the House of Representatives on Wednesday and then signed into law by President Biden the following day. This means the first of the $1,400 checks will go out over the weekend, and the $20 billion set aside for vaccinations will be distributed. Biden has also confirmed that all adults will be eligible for the vaccine by May 1, hopefully paving the way for increased celebrations to occur come the fourth of July.

With the stimulus package signed, sealed, and delivered all eyes looked to the inflation numbers that came out during the week. The data was from February, so of course were not impacted by the latest cash injection, but the market is extremely wary of any sort of inflation that could see the stimulus tap being turned off. There was nothing to fear however as the consumer price rise of 0.4% in Feb and the Core CPI gain of 1.7% came right in line with expectations. This should hopefully keep everyone calm for another month at least.

Online gaming platform Roblox (RBLX) listed officially on Wednesday, and as we discussed in last week’s Catch Up, it did indeed go nuts, rising by more than 54% on its first day of trading. It’s market value now sits around $39.5 billion which isn’t bad for a company that reported losses of $253 million last year. Revenue did increase by 82% to $924 million, however, so it’s now a race to see if it can lower costs and increase revenue again to match its value before kids move onto the next big thing. The next two years will be crucial but I can see the share price moving lower before it moves higher. But you never know.

In the week ahead we’ll be keeping an eye on the FOMC meeting and the following press conference from Fed Reserve chairman Jerome Powell. Bond yields will be in the headlines again after finishing at yearly highs on Friday. Any further rises will put the wind up the technology stocks and move money into the cyclical arena. Earnings reports will come from the likes of homebuilder Lennar Corp (LEN), delivery service FedEx (FDX), and sporting retailer Nike (NKE).

Have a great week.