The pause that refreshes? We'd like to think so, would we not? On the charts, the headline level large-cap indices seem to have merely extended a sideways move (that happens to be at the top of said chart) that began the Friday before last. The S&P 500 gave up 0.13%, while the Nasdaq Composite 0.25% over the five day period, after each had seemingly kissed the sky with less than half an hour to go last Friday afternoon. That said, the action when slowed down and analyzed on a daily or sub-daily basis showed more turbulence than one might expect if say they don't watch the marketplace occupationally.
Friday itself was an undeniably strong day. All of those headline level large-caps indices shaded green, and the green got darker the further down the road of market capitalization one travelled. That said, trading volume was notably lighter on Friday than it had been on Thursday when algorithms forced an overshoot to the downside upon a keyword reading reaction to the revelation of President Biden's tax increases, including a hefty increase in capital gains taxes for the highest earners that had been telegraphed not just ahead of time, but prior to the man's election. In other words, the news Thursday, though possibly negative for markets should have been priced in already, and on Friday, at least enough participants decided that they were.
Back to trading volume, though... which if you read me often, you then know I watch this closely. Why? Because it usually matters unless a holiday is involved. Aggregate trading volume for names listed at the New York Stock Exchange and the Nasdaq market site contracted on Friday. We know that. Trading volume not only contracted on Friday in aggregate for names subordinate to both the S&P 500 and the Nasdaq Composite on Friday, but contracted for both of these indices on Tuesday and Friday, the week's only "up" days. In fact, broadly Tuesday and Friday, the "up" days were the slowest days of the week, while the three down days clearly enjoyed greater participation.
For the week, defensive sectors (Using sector select SPDRs as proxies) led in terms of performance with the REITs (XLRE) and Health Care (XLV) way out in front of everything else, while cyclicals such as Consumer Discretionaries (XLY) , and Energy (XLE) finished well behind the pack. Crude oil itself gave up some ground despite U.S. dollar softness. For those keeping score, demand improved for the longer end of the U.S. Treasury yield curve, yet Utilities (XLU) as a group did rather poorly. Interestingly, there appeared to be far less demand for securities comprising the mid-section of that yield curve... Two, Three, Five and Seven year notes, flattening the slope out to seven years.
So, I must ask (no, I don't expect an answer, for I am a long way from determining my conclusion) does this rather odd looking Treasury security price discovery actually predict a length period of "transitory" consumer level inflation tied to robust, but less than organic (engineered) economic growth? Seven years is clearly more than transitory. Or, and this "or" is significant... does the marketplace just not trust the Fed this week? Not as in not trusting the FOMC to stick to the narrative, but to trust the committee and Fed Chair Jerome Powell to sound credible through the press conference on Wednesday afternoon? Markets appear indecisive. Will the FOMC?
On With The Show
We know that much of the recently released macro-economic data has been strong. March Retail Sales brought a federally induced level of heat. Housing Starts and New Home Sales for March also impressed. Producer Prices have been overheating for a while, Consumer level prices ex the core... seem to be starting to catch up. Regional manufacturing surveys from both the Fed's Philadelphia and New York districts have been scorching and stayed that hot in April. Flash April PMI's for not just the manufacturing sector, but services as well just keep reaching higher.
This Thursday, unfortunately just one day after the FOMC's policy statement (Can we use our heads here? Like maybe schedule Fed meetings and press conferences for AFTER huge domestic economic data dumps... just an idea, Jay... you do what you want.) set for Wednesday afternoon. Right now, Wall Street consensus is for an initial estimate for Q1 GDP economic growth of 6.5% quarter over quarter (seasonally adjusted, and annualized). Understand that this consensus is more like an average than it is a centralized thought. Estimates are all over the map. I have seen estimates made by private economists down in the 4%'s and as high as 10%. The Atlanta Fed's GDPNow model currently stands at 8.3%, but will be revised within hours of this morning's release of Durable Goods Orders data for March by the Census Bureau.
Let's discuss corporate earnings. Performance, with spotted exception, appears to be reaching ever higher as first quarter numbers hit the tape and force full year estimates out to levels once seemingly fantastic. With 25% of the S&P 500 having reported, according to FactSet (where I get my numbers for such things), 84% of these companies have surprised to the upside for earnings and 77% for revenue, Just for the record, if that 84% rate holds, it would be a record since FactSet started compiling such data in 2008.
So far, for the season... the blended (reported plus projected) rate of earnings growth for the first quarter now stands at an incredible 33.8%, up from 30.2% the week prior with just 9% of the S&P 500 in, and 23.8% prior to the kick-off of earnings season. Revenue growth for the season now stands at 7.5%, up from a pre-season 6.2%. This performance has pushed full year estimates up to earnings growth of 29%, on revenue growth of 10.3%, up from 27.9% and 10%, respectively, in just one week's time.
By the way, last week's sideways to slightly lower action across equity market price discovery on top of these higher estimates has permitted the forward looking (12 month) PE ratio for the S&P 500 to contract to 22.3 times from 22.5 times one week ago. The coming week is an especially heavy earnings week both in sheer numbers of firms reporting as well as in the magnitude of those firms. Tonight (Monday) offers up quarterly performance by Tesla (TSLA) . Beyond that, mixed in with industrial giants such as 3M (MMM) , General Electric (GE) , Raytheon Technologies (RTX) , Boeing (BA) , Ford Motor (F) , and Caterpillar (CAT) will be such tech giants as Alphabet (GOOGL) , Microsoft (MSFT) , Apple (AAPL) , and Amazon (AMZN) , not to mention enough key semiconductor names to keep things interesting if they were not already.
What Scares Me
Would you believe that I am afraid of neither man nor beast? How about if I give myself a "motivation" haircut and flex in front of a mirror? Still no? Yeah, I'm not buying it either. After fearing both a power greater than I, as well as the possibility of bad things happening to people I love, I fear ever having to go through COVID ever again. In my life. Some folks get off with a mild case, and don't quite understand. This virus picks and chooses among us, and believe me, if you were chosen, this thing has changed you.
That's why what is going on in India and Brazil I find terrifying. You see, even from a comfortable Long Island setting where the virus seems to be (at least for now) ebbing, I used to work for an India-based firm. I was the only American born employee in the firm, and we used to have a daily morning call as well as several calls throughout the day. I had developed a healthy professional relationship with the Chennai, India-based team. I think of those folks. I wonder who's okay, and who's not. Even for those who do not have friendly acquaintances in one of these hard-hit nations, one must understand that this virus spreading rampantly in such a highly populated nation where only 1.5% of the nation has had access to vaccination at this point allows for expedited mutation. The more rapid or how often the virus mutates, the greater the possibility that the beast creates something that gets around the vaccines already in production and distribution.
People in India are being required, even if they are fortunate enough to find a hospital bed for their loved ones... to bring their own oxygen or don't bother. You think you know misery? That's misery. It's going to be costly, and might be more costly than even the social programs already planned here at home, but the economically developed world is going to have to vaccinate emerging and frontier economies. This is the only way to ever get back to something resembling the old normal. On that note, I see that the Biden administration is contemplating donating the U.S. stockpile of AstraZeneca's (AZN) COVID vaccine to India along with supplies of PPE and medical infrastructure. This is a positive development, but just a start really, and it can not be just us. That said, I see the EU is ready to accept already vaccinated U.S. citizens as tourists. I really can not think of a more reckless idea. Call me crazy, but I don't see recreation as a good reason for cross-border travel until the planet is in much better shape. If you have to vacation domestically, well isn't that just awful.
Did You Notice?
Barron's released the magazine's latest "Big Money Poll" this weekend. This springtime poll of professional money managers finds 67% of respondents bullish on equities over the next 12 months, with just 7% bearish. This is up from 54% and 13%, respectively, six months ago. We thought that was lopsided then. Perhaps more managers like stocks at higher prices, or prefer extended valuations, increased likelihood of higher interest rates, or unchecked global spread of the virus? Perhaps there is just too much "group think'', or as my pal Doug Kass likes to say, "Group Stink."
Though I have moved back and forth in terms of cash balance in quite volatile fashion for myself of late... I went into the weekend with that balance above recent norms, though not at highs. Yes, I think you can "play" earnings here. They should continue to be excellent and the guidance should continue to be positive as well. That didn't do much for Intel (INTC) . Just sayin'. That said, there is enough visible danger, and enough lack of situational awareness among my peers to proceed with some caution. No, I am not a bear. I do not stand with that 7%, but I definitely do think I find myself hidden in that unspoken of 26% of professionals that appear to be able to admit that they just don't know.
Monday morning calls. Button down those jerseys. Tape on the foil. It's time to play our favorite game.
Economics (All Times Eastern)
08:30 - Durable Goods Orders (Mar): Expecting 2.3% m/m, Last -1.1% m/m.
08:30 - ex-Transportation (Mar): Expecting 1.6% m/m, Last -0.9% m/m.
08:30 - ex-Defense (Mar): Expecting 1.2% m/m, Last -0.7% m/m.
08:30 - Core Capital Goods (Mar): Expecting 1.5% m/m, Last -0.8% m/m.
10:30 - Dallas Fed Manufacturing Index (Apr): Expecting 26.8, Last 28.9.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)