- Equities give up some ground on Friday but remain poised for fresh records.
- Earnings season continues to see record growth in earnings
- Fed remains committed to full employment and a fully accommodative stance.
Another week another set of fresh records for equity markets. There really is no alternative (TINA) continues to dominate the narrative. The Fed on Wednesday kept the inflation fear capped and left the taps open. Bond buying at the short end of the curve is to continue, rates are set to zero for years to come and the economy is set to rebound strongly.
April is now done and dusted and the Nasdaq notched its sixth straight month of gains, three consecutive months of gains for the S&P 500 and Dow. April saw the Nasdaq lead the way with a 5.4% gain on the month, just shading the S&P 500 with a 5.24% gain. Shame on the Dow posting a gain of a paltry 2.72%. The last week of April actually saw some profit taking, surprise surprise! The S&P 500 was a barely positive +0.03%, while both the Nasdaq -0.39% and the Dow -0.48% ended the week negatively.
Big tech stocks dragged indices down on Friday despite stellar earnings reports from all except Twitter. TWTR shares managed to slump 15% on Friday.
Overall though earnings season continues to impress. This was a busy week for earnings, the busiest of the season and it did not let things down with stellar performances from Apple, Amazon, and Facebook among others. To date, 303 companies from the S&P 500 have reported earnings for Q1 2021 and 87.1% have beaten expectations, according to the latest Refinitiv data. This improves on last quarter when 76% of company earnings beat expectations. The long term average beat is 65%. Next week sees 139 companies from the S&P 500 report with Uber, Pfizer, AIG, and Lyft as some of the more notable reports, not forgetting AMC going to the moon to the moon on Thursday!
In terms of fund flows, the latest Refinitiv data shows the same picture as the last couple of weeks with equities taking the biggest slice of the pie. Equity funds did actually see redemptions for the first time in 12 weeks with $3.1 billion in outflows but equity ETF’s more than made up for that with $3.8 billion inflows, the 12th straight week of inflows. Notably, two of the larger and broader ETF’s, the SPY (S&P 500 tracker) and QQQ (Nasdaq tracker), both saw outflows. The Russell 2000 ETF (IWM) also saw outflows.
However, short-covering has bottomed out and shorts are reentering the market. The latest data from fintel.io shows an 18% short ratio in the SPY ETF against a low of 9% last week.
Technically, things are starting to look just a bit more bearish with the Moving Average Convergence Divergence (MACD) giving a crossover sell signal. These signals are far from perfect, yet they do indicate that price may be overstretched a little. The 9-day moving average has been holding the bullish trend for now so a break should see a retracement toward 4118. Given the overall strength of the equity market and the multitude of factors we have mentioned, such as the Fed and US economic developments, this 4118 level would serve best as a buy the dip strategy.
SPX Earnings season continues with 139 S&P 500 companies reporting
2021-05-04 Before Market Open Bunge
2021-05-04 Before Market Open Pfizer
2021-05-04 Before Market Open Under Armour
2021-05-04 Before Market Open CVS Health
2021-05-04 After Market Close Activision Blizzard
2021-05-04 After Market Close Prudential Financial
2021-05-04 After Market Close Lyft
2021-05-05 Before Market Open CDW
2021-05-05 Before Market Open General Motors
2021-05-05 After Market Close Fox
2021-05-05 After Market Close Uber Technologies
2021-05-06 After Market Close AMC Entertainment Hldgs
2021-05-06 Before Market Open Canadian Natural Res
2021-05-06 Before Market Open Anheuser-Busch InBev
2021-05-06 Before Market Open ViacomCBS
2021-05-06 Before Market Open Cardinal Health
2021-05-06 After Market Close Credicorp
2021-05-06 After Market Close Beyond Meat
2021-05-06 After Market Close American International Group
Monday brings some ISM data with Manufacturing PMI expected to be 65 and New Orders Index expected to gain from March’s 68 reading. Federal Reserve Chairman Powell also speaks on Monday but given his careful performance last Wednesday, no surprises are expected here.
Tuesday is a quiet one on the economic front with the Trade Balance maybe giving some action to the dollar and ISM NY Business Condition expected to come in at 29.5 for April. Pfizer reports before the open and investors will look at covid vaccine sales data and pricing. Under Armour also reports Tuesday.
Wednesday ISM data turns to the services sector with New Orders Index expected to come in at 56.6 and Services PMI for April expected at 64.3 from a prior 63.7. General Motors (GM) reports on Wednesday and, after the Ford debacle last week, expect continued focus on chip shortages. Uber also reports.
Thursday brings weekly jobless claims expected to be 540k.
Friday is the big one with the release of the employment report. This is the Fed’s main target at the moment. The unemployment rate is forecast at 5.7% improving from a prior 6%. Nonfarm Payrolls are forecast to rise 950k from a previous 916k.
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