Earnings Boom or Bust – Market Brief April 19, 2021

A mix of good economic news and concerns about the Johnson & Johnson vaccine hit the market last week. The major indices finished with modest gains around +1% for the week. Fed chair Powell remarked last week that most officials do not see interest rates rising until 2024.

Last Week

Economic data was strong. Retails sales advanced 9.8% in March, fueled by stimulus checks, the best results since May 2020. Jobless claims fell to 576,000, well below estimates of 710,000. The Philadelphia Fed factory index jumped to 50.2 from 44.5. The highest reading in 50 years. Housing starts reached a 15 year high despite soaring lumber prices. Overseas, China’s Q1 GDP came in at +18.3% versus estimates of +19%, and trade data slightly missed lofty expectations but continued to show impressive growth. Tensions between the U.S. and China are beginning again, so we’ll see if that starts to grab more headlines in the months ahead.

Week Ahead

Fed chair Powell remarked last week that most officials do not see interest rates rising until 2024. The U.S. NFIB Small Business Optimism report showed that small businesses are struggling to find qualified workers. This may put upward pressure on wages and spark more inflation (and higher interest rate) concerns. Fed officials continue to push expectations of inflationary pressures being temporary. However, with commodity prices rising, and squeezes on the supply chain and labor markets due to the accelerating vaccination pace, how long will it be until the market forces the Fed’s hand?

Meanwhile, earnings season continues this week. Expect to hear comments about higher costs and customer demand in conference calls this week. Because the U.S. economy is emerging from the Covid-19 crisis, most analysts thought first-quarter numbers would be good. So far, they have been much better than good: By the end of Friday, S&P 500 companies that had already reported had beaten profit expectations by a combined 30%, according to FactSet, compared with a five-year average of 7%. Optimism is reinforced by the latest economic data. In the U.S., retail sales for March were the strongest in 10 months. Even in Europe, where there has been less fiscal support for the economy, figures are coming in strong.

Year-to-date index performance; Dow up 11.75%, S&P up 11.44%, and Nasdaq up 9.03% through the close on Friday.

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