07.05.2021 -
Global equities experienced varying volatility but rose for the week, reflecting a shift from mega-cap names to economy reopening plays. The yield on the benchmark US 10-year Treasury note dropped from 1.64% to 1.56% following a disappointing April hiring report on Friday morning. The price of a barrel of West Texas Intermediate crude oil rose to $64.84 while volatility, as measured by the Cboe Volatility Index (VIX), fell to 17.1 from 18.6 a week ago.
MACRO NEWS
A trend that bears watching
The Wall Street adage, “sell in May, go away,” did not materialize this week, but it’s an historic trend that's worth watching. The phrase counsels selling in May, when the market tends to be lower and investing in November, when it tends to pick up. (The expression originally referred to aristocrats, merchants, and bankers escaping London during the hot summer months.) Going back to 1945, the market has posted lower returns during the May to October period than in the November to April period. Additionally, since 1990, cyclical sectors have outpaced defensive sectors during the November through April period, with the consumer discretionary, industrials, materials, and technology sectors leading the way. Meanwhile, defensive sectors have outpaced the market from May through October.
Recent trading activity
April trading data revealed huge inflows into equities that were even stronger than in the first three months of the year, with near-record inflows into ESG, thematic tech and other areas supporting prices. More recently, investors continued to shift away from mega-cap growth stocks and toward companies expected to benefit from the reopening of economies. Nearly 40% of Fidelity Investments' new accounts in the first quarter were opened by retail investors 35 years old or younger, for a year-over-year increase of more than 200%. Also, daily average trades in the quarter were up nearly 60% from last year. According to ETF Trends, $55 billion was put into equity ETFs in April for a year-to-date total of $258 billion.
Yellen briefly hints of higher rates
US Secretary of the Treasury Janet Yellen conceded that interest rates might have to rise to keep a lid on the burgeoning growth of the US economy brought on in part by massive government stimulus spending. Inflation concerns have arisen due to the spending and the rapid growth, but US Federal Reserve officials have said that after a brief rise this year, price pressures are likely to ebb. However, Yellen later tempered her initial statement back by saying she is largely not particularly concerned about inflation becoming a problem, as price increases during the recovery should be transitory.
Dividends: Don’t call it a comeback
In April 2020, two dozen companies in the S&P 500 Index reduced or suspended their dividends, and more suspensions and dividends came later in the year. In April 2021, the opposite happened: Thirty-three companies in the S&P 500 announced dividend increases, and no companies decreased or suspended dividends. Most important, 11 companies that suspended dividends in 2020 began paying again in April, and three of them are paying higher dividends than they were before they suspended payments. S&P estimates that the overall dividend payout for the S&P 500 will increase 5% in 2021. That would mean a payout to investors of about $515 billion, up from $483 billion in 2020.
Fed posts ominous warning
The Fed said that rising asset prices in the stock market and elsewhere are increasingly threatening the financial system. In its semiannual Financial Stability Report, the central bank said that while the system has remained stable even through the COVID-19 pandemic, a tailing off of the aggressive run on stocks could be dangerous. The Fed said that high asset prices are partly a reflection of the continued low level of US Treasury yields. However, valuations for some assets are elevated relative to historical norms even when using measures that account for Treasury yields. In this setting, asset prices may be vulnerable to significant declines should the appetite for risk fall.
Hiring falls flat in April
April’s expected hiring boom did not materialize as nonfarm payroll fell well short of estimates. Nonfarm payrolls increased by much less (266,000) than the expected one million jobs, and the unemployment rate rose to 6.1% amid a shortage of available workers that is growing worse. In addition, March hiring was revised down to 770,000 from the originally estimated 916,000, although February saw an upward revision to 536,000 from 468,000. The leisure and hospitality industry saw the biggest hiring gains, adding 331,000 workers, though that still left the industry nearly 2.9 million shy of where it was before the pandemic.
QUICK HITS
The US employment picture improved sharply last week, with first-time claims for unemployment insurance hitting a fresh pandemic-era low. That was reinforced by the fewest job cuts by US-based employers in April since 2000.
Warren Buffett, 90, ended long-running speculation about his successor at Berkshire Hathaway with the announcement that Greg Abel, who oversees the conglomerate’s noninsurance businesses, would be named chief executive officer if he stepped down.
About 40% of American adults are now fully vaccinated for COVID-19, Centers for Disease Control and Prevention data show, as the rate of new coronavirus infections continues to decline.
Eurozone factory activity growth surged to a record high in April, boosted by escalating demand that drove a rise in hiring, although supply constraints led to an unprecedented rise in unfulfilled orders.
The World Health Organization is closely following 10 coronavirus variants, including two that were first detected in the US and the triple-mutant variant that is wreaking havoc in India.
China’s greenhouse gas emissions in 2019 exceeded those of the entire developed world, according to the Rhodium Group.
US construction spending rebounded less than expected in March, with a 0.2% gain (1.9% growth expected) as strength in housing was offset by continued weakness in outlays on nonresidential structures and public projects.
The Bank of England slowed the pace of its trillion-dollar stimulus program and forecast a faster recovery for Britain from the coronavirus slump, but stressed it was not tightening monetary policy. The governor of the Bank of England warned that inflation was likely to be bumpy this year but insisted there was little reason to panic over the medium term.
Almost two-thirds (64%) of US entrepreneurs now say their business can survive more than a year under current business conditions, up from 55% last quarter, according to a CNBC survey.
US President Joe Biden wants to raise taxes on US single filers, probably those earning over $452,700 a year and couples earning more than $509,300. He also wants to see a corporate tax rate between 25% and 28%, setting down a new marker in the ongoing negotiations over a major infrastructure bill.
The US trade deficit jumped 5.6% to a record high of $74.4 billion in March, the US Department of Commerce disclosed amid rising domestic demand.
About 44% of US millennials born between 1981 and 1988 have been diagnosed with at least one chronic health condition, according to a recent Harris poll.
Cofounder and former CEO of Microsoft Bill Gates and his wife Melinda French Gates said that they would end their marriage after 27 years.
US birth and fertility rates dropped to another record low in 2020 as births fell for the sixth consecutive year to the lowest levels since 1979.
The Biden administration announced that it supports waiving intellectual patent protections for COVID-19 vaccines, a tactic that is also being considered by the European Union.
In the wake of the pandemic-induced economic slump, the EU unveiled a plan to cut its dependency on Chinese and other foreign suppliers in six strategic areas, including cloud and edge technologies, batteries, active pharmaceutical ingredients, hydrogen and semiconductors.
The US dollar hit its highest level in over two weeks, extending a rally as chatter about the possibility of higher US interest rates and a selloff in tech stocks soured risk sentiment to the benefit of the safe-haven currency.
A US federal judge struck down the US national eviction moratorium, potentially leaving millions of Americans at risk of losing their homes. However, the Department of Justice appealed the decision, meaning the ban would remain in effect throughout the court battle.
US private payrolls in April increased by the most in seven months as companies rushed to boost production amid a surge in demand.
Hinweise:
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Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research, CNBC.com.
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