Overview: Stock markets were mostly unchanged across the globe last week. In the U.S., the S&P 500 Index was down -0.1%, as news of potential tax hikes on capital gains and raising taxes on higher-income earners dampened enthusiasm of strong first-quarter earnings reports. Similarly, international developed stocks (MSCI EAFE) declined as global COVID-19 cases increased, despite generally strong economic news. In bonds, U.S. rates continued their downward trend last week as renewed concerns around virus spread globally has led to a flight-to-safety trade and increased demand for bonds. The 10-Year Treasury yield fell to 1.56%, after beginning the month of April at 1.75%. In economic news, strong activity in April was evident in last week’s purchasing managers (PMI) data (more detail in the last section). The labor markets in the U.S. continued to show improvement, with initial jobless claims reporting at 547,000, a new low since the beginning of the pandemic.
Upcoming this Week: It’s the busiest week of first-quarter earnings season, with more than a third of S&P 500 companies scheduled to report earnings. Tesla’s results will be the main event on Monday, April 26, followed by Alphabet (Google), General Electric, Microsoft, Starbucks, United Parcel Service, and Visa on Tuesday. On Wednesday, Apple, Boeing, Facebook, Ford Motor, and Qualcomm are some of the highlights. Other key earnings this week will be Amazon, Caterpillar, Comcast, Mastercard, McDonald’s, Merck, and Twitter. The Federal Reserve will hold its scheduled meeting on Tuesday and Wednesday, with investors watching for any shift in tone or timing with regard to monetary accommodation that is in place. On Thursday, the first reading for first-quarter gross domestic product (GDP) is reported, with a consensus expectation of a strong 6.5% growth for the quarter.
A Look at Global Manufacturing (from JP Morgan): The Purchasing Managers Index (PMI) is a measure of the direction of economic trends in manufacturing. Last week provided a first look at the April PMI data for the major developed market economies. Manufacturing and services PMIs came in at 63.3 and 50.3, respectively, for the euro area and 53.3 and 48.3, respectively, for Japan. While manufacturing activity continues to look robust, the continued recovery in services on the back of vaccination efforts and the gradual lifting of social distancing measures should lead to accelerating growth over the remainder of the year. Although Japan’s services PMI came in below 50 at 48.3, household spending on services continued to improve on a year-over-year basis, indicating that services are indeed on the road to recovery. Similar to Europe and Japan, U.S. April flash PMI data came in above 50, with manufacturing and services PMIs rising relative to the prior month. Unsurprisingly, this improvement in economic data has coincided with solid earnings results, particularly among the industries hit hardest by the pandemic like financials and airlines. Looking ahead, a steeper yield curve and improving credit metrics have eased some pressure on bank margins, and while the airlines are still posting net losses, increased mobility has led most airlines to project they will begin to break even by the summer. Broadly, an environment of accelerating economic growth and rising rates should support the more cyclical parts of the market, and reinforces our constructive view on both value and international equities.
Sources: JP Morgan Asset Management, Goldman Sachs Asset Management, Barron’s
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