PAS Weekly Commentary

Market Sweats Out New Highs but Ends Week Mixed and Little Changed

The market was given a lot of good news this week, but it had to work especially hard for incremental new highs in the S&P 500 (unch) and Nasdaq Composite (-0.4%), which was a bit frustrating for bullish investors. The S&P 500 finished flat, while the Nasdaq (-0.4%), Dow Jones Industrial Average (-0.5%) and Russell 2000 (-0.2%) closed slightly lower.

Briefly highlighting the heavy slate of positive-sounding developments:

  • Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG), Facebook (FB), and Tesla (TSLA) exceeded expectations on strong revenue growth.
  • Fed Chair Powell said it wasn't time to start talking about tapering asset purchases, reiterating it'll take substantial further progress until the Fed's employment and inflation goals are reached. The FOMC left the fed funds rate and pace of asset purchases unchanged, as expected.
  • Advance Q1 GDP increased at a 6.4% annualized rate ( consensus 6.5%), personal income surged 21.1% m/m in March ( consensus 20.5%) on the back of the stimulus checks, and PCE Prices were relatively tame on a year-over-year basis.
  • President Biden outlined his $1.8 trillion American Families Plan to Congress. Some Senate Democrats were reportedly against the idea of significantly raising capital gains taxes to help fund the plan, but there was a view that some sort of additional infrastructure spending (traditional/social) will still get done.

And the reaction: three days of sideways activity, followed by one decent up day and then a disappointing finish to the week. The energy (+3.6%), financials (+2.4%), and communication services (+2.9%) sectors did end the week solidly higher, while the information technology (-2.1%) and health care (-1.9%) sectors fell 2%.

So, what happened? Well, in the five weeks leading into JPMorgan Chase's (JPM) earnings report before the open on April 14, the S&P 500 rallied around 8%. In the two weeks since, the S&P 500 gained 1.4%, which suggested that a lot of the earnings news was priced in during the pre-earnings run.

More nettlesome, though, was that the market's behavior to good news this week fed into the "peak growth" narrative, which says that the stock market will find it harder to keep rallying when economic/earnings growth rates moderate. In the meantime, the market just consolidated for the second straight week.

The 10-yr yield increased six basis points to 1.63%.

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2021-120631 (Exp 8/21)