May 7, 2021
America is reopening but the jobs picture is mixed. We continue to see states, big cities and individual companies in America reopening and laying plans to get back to work, however, April’s Payroll report missed expectations by one of the largest margins in history (see economy section). That said, this week did see new cases of the virus in the U.S. fall back below 50,000 a day in the U.S. and weekly initial unemployment claims also dropped back below 500,000 for the first time since the beginning of the pandemic. So, despite the softer than expected April employment numbers, there is hope, optimism and activity in the economy. Unfortunately, there are still places in the world where the virus is surging, but we are excited about the U.S. cases moving lower.
Stocks remain in an upward path, but rotational and skittish. We did get quite a few headlines this week like; ”China warplanes in Taiwanese airspace,” Treasury Secretary Yellen saying “interest rates will have to rise,” U.S. Trade Representative Tai stating that “the U.S. can’t shy away from being tough on China” and of course the April Payrolls report. Stocks ebbed and flowed on each headline, but generally recovered. Look for this pattern to potentially continue into the Summer with a continued strong economic recovery.
Inflation is in focus, but bond yields are not moving. There were no specific inflation reports this week, but there sure was much debate. Most Americans are very worried about potential inflation, while Federal Reserve officials continue to say in harmony that inflation is transitory (short-term). To us, the ultimate arbiter of inflation expectations is that the bond market and yields are not budging. Since peaking at 1.75% on March 31st, the yield on the 10-year Treasury now stands at 1.56% as of this writing.
- Exports rose to $200.03 billion in March. This is significant as it is the first number back to $200 billion a month since pre-pandemic.
- Construction Spending rose 0.2% from the previous month in March. On a dollar basis, Private Residential Construction is running at an annualized rate of $725.2 billion, which is the largest dollar pace since records began in 1993. Meanwhile, Non-Residential Construction is running at $443.95 billion, which is the lowest pace since 2017.
- Monthly Total Vehicle Sales in April rose to an 18.51 million annualized pace, which is the best pace since 2005!
- Factory Orders rose in March by 1.1% from the previous month, with mostly positive categories except aircraft.
- ISM Manufacturing Index actually declined slightly in April to a reading of 60.7 but remains elevated and above the 60 level for only the 3rd time in the last 20 years.
- ISM Services Index also declined slightly in April to a reading of 62.7 but, like manufacturing, remains above the 60 level for only the third time in the last 20 years.
- Monthly Employment Report comes in well below expectations adding just 266,000 jobs in April versus consensus estimates of 995,000. The unemployment rate also increased slightly to 6.1%.
- Economists cited ongoing virus fears, childcare obligations, supply chain bottlenecks and possible skills gaps as contributing factors for the miss.
Markets (mid-day Friday)
- Stocks—Bit of a mixed week for equity markets with most major indexes up in the 1%-2% range with the exception of the NASDAQ -1.37% and MSCI Emerging Markets -0.51% week-to-date as of this writing.
- Commodities—Another strong week, with all six sectors of the commodity complex higher led by Grains, Industrial Metals and Softs.
- U.S. Dollar Index (DXY)—This index remains rangebound between 90-92 and is currently at the 90.29. level.
- Bonds—Yields drifted lower this week with the 10-year treasury currently at 1.56%.
- Economic Reports
- NFIB Small Business Optimism Index, JOLTS Job Openings, CPI/PPI, Retail Sales, Industrial Production, UofM Consumer Sentiment
- U.K. government to announce decision on lifting certain pandemic restrictions May 10th
- Central bank meeting for Mexico
- Happy Mother’s Day!
- Earnings Reports
- Q1-2021 earnings season slows:
- S&P 500 Q1 EPS summary: 285 reported; 88% above estimate; YoY EPS = +45.8%
- Earnings of interest: Duke Energy, Marriott, Simon Properties, Disney, etc.