Author: admin

Equities climbed higher this week on solid earnings results and a big miss in the employment report. The Dow Jones Industrial average climbed 2.67 percent, the S&P 500 Index 1.23 percent and the Russell 2000 Index 0.23 percent. The Nasdaq declined 1.51 percent as investors continued the rotation from growth to value.

SPDR Financials (XLF) increased 4.22 percent this week. A stabilization in interest rates helped the sector, as did economic data. SPDR Industrial (XLI) advanced 3.39 percent and SPDR Healthcare (XLV) 2.29 percent with investors preferring cyclical and value names over growth. SPDR Energy (XLE) rose 8.72 percent. SPDR Materials (XLB) returned 5.80 percent.

The employment report for April was a big miss. Economists were looking for 1 million new hires, but the result was only 266,000 net new jobs. The result was incongruent with every other data set that shows a roaring re-opening of the economy.

Businesses think the problem is the government’s stimulus checks and increased unemployment benefits. The U.S. Chamber of Commerce put out a statement on Friday stating, “The disappointing jobs report makes it clear that paying people not to work is dampening what should be a stronger jobs market…One step policymakers should take now is ending the $300 weekly supplemental unemployment benefit. Based on the Chamber’s analysis, the $300 benefit results in approximately one in four recipients taking home more in unemployment than they earned working.”

Neel Kashkari, head of the Minneapolis Federal Reserve Bank concurred earlier in the day. The current policy of paying Americans not to work is exacerbating both inflation and slowing the economic recovery, increasing the risk of stagflation. There were 111,000 fewer part-time jobs in April, the exact opposite of what should be occuring. These lower-wage jobs are precisely those being “outbid” by boosted benefits.

Initial jobless claims fell below 500,000 for the first time since the pandemic hit last week. This signals that while workers aren’t coming back in force yet, they are losing their jobs at an ever slowing pace.

Economic data elsewhere was strong. The manufacturing PMI stayed high above 60, while the services PMI crossed above the manufacturing PMI to hit 64.7 percent, a sign the reopening is picking up steam.

Motor vehicle sales hit an annualized pace of 18.5 million in April with stimulus checks helping consumers afford down payments on new cars.

On the heels of the latest sluggish payroll reports, the Bloomberg Dollar Spot Index declined 0.7 percent on Friday, piling onto a 0.5 percent dip from the previous day. This was the dollar’s worst performance over the last two months.

Crude oil and natural gas were stable this week, holding near recent highs. Lumber futures climbed more than 20 percent this week, with futures up nearly $300 to a new all-time high of $1,670 per 1000 board feet. iShares Global Timer & Forestry (WOOD) hit an all-time high as well after rising 5.43 percent through Friday.

Earnings season kept on delivering positive results. The blended growth rate for the S&P 500 Index climbed to 49.4 percent for the first quarter. This is more than double analyst forecasts.

Expedia (EXPE) shares spiked 5.24 percent in light of better-than-expected first-quarter results, which reflected a much narrower decline than analysts forecasted. On the other hand, Monster Beverage (MNST) shares took a tumble of 3.97 percent on news of its first-quarter earnings falling short of expectations.

Bonds were higher across the board this week with interest rates moving lower. Investment grade corporate bonds performed the best. iShares iBoxx Investment Grade Corporate Bond (LQD) returned 0.64 percent.

Stocks closed down on Friday following new record-highs on Thursday. The S&P 500 dropped 0.72 percent, the Dow 0.54 percent and the Nasdaq 0.85 percent on Friday. The Russell 2000 small-cap index took the biggest hit, with a loss of 1.26 percent.

For the week, the S&P 500 Index gained 0.02 percent, while the Russell 2000 Index, Nasdaq and Dow Jones Industrial Average decreased 0.36 percent, 0.39 percent and 0.50 percent, respectively.

SPDR Energy (XLE) climbed 3.89 percent this week, SPDR Financial (XLF) 2.49 percent and SPDR Communication Services (XLC) 2.13 percent. Crude oil powered energy this week as it hit $65 per barrel again before pulling back. Natural gas touched $3 per mmBTU for the first time since February. First Trust ISE Revere Natural Gas (FCG) rose 6.03 percent on the week.

Twitter (TWTR) shares took a plunge on Friday with a loss of 15.16 percent due to lagging first-quarter earnings for its advertising division.

First quarter economic growth hit 6.4 percent according to the government’s first estimate. Consumer spending on cars, travel and restaurants helped drive growth. Business investment also jumped, as did government spending. Personal consumption generated 7.0 percent of headline GDP growth. Offsetting growth was falling inventories at retailers. When inventories increase, it is recoded as GDP growth, but when inventories decline, it subtracts from GDP. Since retailers will have to rebuild inventory going forward, that is positive for growth in the coming quarters.

The Conference Board recorded sharply higher consumer confidence in April. The “current conditions” subindex hit its highest level since the lockdowns began in March 2020. Consumers are also more optimistic about the future than they have been in the past two years, a sign that the reopening has lifted outlooks.

The Bloomberg Dollar Spot Index increased by 0.75 percent on Friday. The 10-year Treasury Note yield on Friday remained fairly stagnant at 1.63 percent for the day. Over the week, the yield was only up slightly by 0.1 percent.

Foreign shares were hit hard by the dollar rally. Both iShares MSCI EAFE (EFA) and iShares MSCI Emerging Markets (EEM) were up for the week as of Thursday, but Friday’s losses left them down 1.23 percent and 1.17 percent, respectively, for the week.

On Friday, West Texas Intermediate crude oil prices dipped 2.3 percent over the day to $64 a barrel.

Gold futures (GC=F) bumped up only narrowly by 0.03 percent to $1,768.80 per ounce on Friday. On the other hand, silver futures (SI=F) increased slightly on Friday by 0.53 percent to close at $25.92 an ounce.

U.S. economic data was encouraging. GDP for the first quarter was up 4.3 percent over the previous quarter and was 6.4 percent higher than a year ago. In addition, due to infusions of direct federal stimulus payments, consumer spending spiked by 10.7 percent, accounting for around 70 percent of the overall economic growth. Consumer Discretionary Select Sector SPDR Fund (XLY) was up by 0.39 percent on Friday.

Personal income, on the heels of direct stimulus checks, was the major winner on Friday with a monthly spike of a 21.1 percent increase from February to March, which was above the 20.3 percent rise projected. The personal savings rate for March also increased to 27.6 percent, the second-highest savings rate in history following the 33.7 percent record set in April of last year.

Unemployment data released earlier in the week revealed that first-time unemployment claims decreased by 13,000 claims to come in at 553,000, which is the lowest-level since the start of the pandemic. The third week in a row of reduced first-time claims filed indicates an uptick in the labor market recovery, which is still around 200,000 more initial jobless claims higher than before the pandemic hit.