Stocks are coming off a week of gains as earnings topped estimates and strong economic data lifted major averages. The S&P and Dow advanced 1.38% and 1.18% respectively last week for their fourth straight week of gains, while the Nasdaq Composite posted its third positive week in a row. No doubt, Wall Street is finding every opportunity to buy all kinds of risk assets.
Earnings season kicked off last week when the major banks reported quarterly results. A host of companies are also set to provide their updates this week. Ten Dow components will report, along with 72 S&P 500 companies. Coca-Cola, IBM and United Airlines are among the names set to report earnings on Monday.
Despite stocks trading around record levels, many firms have lifted its forecast for the year.
While investing at all-time highs may be daunting for some, we believe there is more upside ahead. Following two rounds of stimulus deployed in the quarter and ongoing vaccination efforts, there is growing evidence that US economic activity is picking up. The latest jobs data, business sentiment readings, and retail sales all point to a strong recovery.
The Russell 1000 Growth index has outperformed over the last month, gaining 10% compared to the Russell 1000 Value index’s 4% rise, clawing back some of the recent losses after a jump in yields sparked a rotation out of technology and growth-oriented areas of the market.
Over the last three months value stocks are still outperforming, however, and we believe there’s more upside ahead for the group. On the coronavirus front, White House Chief Medical Advisor Anthony Fauci said he expects the US will resume the administration of the Johnson & Johnson vaccine. The Food and Drug Administration asked states last week to temporarily halt using the single dose vaccine “out of an abundance of caution” after six women developed a rare blood-clotting disorder.
The Dow’s push through 34,000 is a signal that investor appetite for future growth prospects is spilling over into more value-oriented names. The demand for industrials and more cyclically oriented areas should continue as the vaccines take hold and earnings potentially come in higher than originally expected.
Investor sentiment was also boosted by a slew of economic data this week that pointed to a rebound in consumer spending, sentiment and the jobs market. The University of Michigan said Friday its preliminary consumer sentiment index rose to a one-year high of 86.5 in the first half of this month from 84.9 in March.
Federal Reserve Governor Christopher Waller said Friday the US economy is set to take off, but there’s still no reason to start tightening policy.
Data last week showed that retail sales jumped 9.8% in March as additional stimulus sent consumer spending soaring, topping the Dow Jones estimate of a 6.1% gain. Meanwhile, the Labor Department reported 576,000 first-time filings for unemployment insurance for the week ending April 10, reaching the lowest level since March 2020.
S&P 500’s strong performance in recent weeks has pushed its year-to-date gains to more than 11%. Cyclical sectors have been the biggest winners this year with energy and financials leading the rally.
