12 Apr Capital 19 Catch-Up

Vaccination Rates, an Infrastructure Boom and Job Numbers Combine to Send Stocks Higher

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Wall Street got off to a flyer last week as economic data continued to show signs of an improving economy, and vaccinations hit record levels. The middle sessions were less dramatic as markets paused ahead of the new earnings season, however, the Friday session saw another jump higher with the Dow and the S&P500 closing out the week at new record closing highs.

Overall the Nasdaq led the way, rising 3.1% for the week. It was led by its biggest component Apple (AAPL) who gained more than 8%, while Amazon (AMZN) and Alphabet (GOOGL) also made more than 6%. The S&P 500 was in second place, picking up 2.7%, while the Dow brought up the rear with a still impressive 2% gain.

In the previous week, we had the final session for the month of March and the ending of the first quarter of 2021. The Dow and the S&P500 had massive months, gaining 6.6% and 4.3% respectively, while the Nasdaq could only manage a 0.4% move higher weighed down by the larger tech stocks and the stay-at-home plays that were so successful during the heady days of the pandemic.

For the quarter the Dow and S&P500 saw their fourth positive rise in a row, with the headline index gaining 7.8% and the benchmark making 5.8%. The Nasdaq was again a far off third with a 2.8% gain. None, however, could match the Capital 19 Top 30 strategy which managed to gain 28% for the first three months of the year. If you’d like to get involved just mention it to your advisor.

Nonfarm payrolls from the previous Friday saw 916,000 new jobs added to the US economy. It was the highest number of new jobs since August 2020. The unemployment rate also dropped to 6% in another positive sign that things are getting back on track. The services data was also strong with the ISM non-manufacturing index hitting an all-time record of 63.7 for March.

Later in the week, The Labor Department said that US job openings rose by 268,000 to 7.4 million, which was a two year high. Economists had been expecting a rise to around 7 million. The producer price index also rose by a full 1%, and more than the 0.4% expected. While year on year its gain of 4.2% was its largest increase in nine years. It will be interesting to see if these numbers are reflected in the inflation figures that come out next week.

A lot of this positive recent data is thanks to the successful vaccination programme which is seeing record numbers of citizens receive their shots. On Saturday more than 3 million people were given an injection, the daily average now hitting 3 million-plus. The California Governor announced that his state would be reopening officially on the 15th of June, assuming that everything goes to plan, even as states around them have already begun their opening processes. With more than 1 in 5 Americans now vaccinated, the next few months are looking to be very exciting for the US economy.

Added to this is President Biden’s $2 trillion infrastructure proposal which involves plans to revitalize transportation, water systems, broadband and manufacturing. Biden wants a corporate tax increase to 28% as well as measures designed to prevent offshoring of profits to pay for the plan. The Republicans are against it of course. But as the Democrats own both the senate and the house they don’t need their support. They just have to agree amongst themselves, which isn’t as easy as it sounds. But the important news is that this money will be invested into the economy shortly.

With an accommodative Fed Reserve, this economy is going to be cooking in no time. Their monthly meeting notes came out on Wednesday stating “Participants noted that it would likely be some time until substantial further progress toward the Committee’s maximum-employment and price-stability goals would be realized and that, consistent with the Committee’s outcome-based guidance, asset purchases would continue at least at the current pace until then.” It’s a slam dunk for corporate earnings – which is great as we are just heading into a brand new earnings season.

JPMorgan Chase (JPM) CEO Jamie Dimon summed the situation up best in his annual letter to investors. In it he wrote “I have little doubt that with excess savings, new stimulus savings, huge deficit spending, more QE, a new potential infrastructure bill, a successful vaccine and euphoria around the end of the pandemic, the U.S. economy will likely boom. This boom could easily run into 2023 because all the spending could extend well into 2023.”

It’s a feeling that is being shared all over Wall Street. Last week Bank of America claimed that more money has gone into global equity funds in the last five months than in the previous twelve years combined. That’s $569 billion from November to now and just $452 billion during the entire bull run of 2009-2020.

It bodes well for the incoming earnings season which kicks off this week. Year over year profits are expected to rise by around 24%, which would be the markets best result since the third quarter of 2018. Unusually estimates have been rising rather than decreasing the closer we get to the release date. More generally the opposite happens as analysts downgrades outlooks as the report date comes nearer. They’ve now risen 6% throughout the quarter. In the last quarter, we saw 80% of companies beat guidance but only 42% of them seeing their share price increase on the day. We’ll be hoping for some big wins, and just as importantly some impressive guidance for future quarters.

The big boppers will kick off on Wednesday with JPMorgan and Wells Fargo (WFC) reporting alongside Goldman Sachs (GS) and Bed Bath and Beyond (BBBY). On Thursday it will be Bank of America (BAC) and Citigroup (C) along with UnitedHealth (UNH), Pepsico (PEP), and Delta Airlines (DAL). The week will be rounded out by financials Morgan Stanley (MS), BNY Mellon (BNY), and PNC (PNC) on Friday. The economic data will include the Core CPI numbers, retail sales for March, along with the Philly Fed and the Empire State index.

Have a great week.