The First Hike | LPL Daily Market Update

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Wednesday, April 21, 2021

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The First Hike

One of the top questions we’ve received lately has been what happens after the Federal Reserve Bank (Fed) starts to hike rates. Let’s be clear—we don’t see a rate hike until at least 2023, but it is good to be ready. Stocks historically see some weakness in the first three months after a new hike, especially lately in ’04 and ’15. Going out a year though the returns are better than average, as hiking early in a cycle likely means a better economy. So it isn’t the fear many claim. We will discuss this more in detail in the LPL Research blog, available today at 12p.m ET.

Daily Insights

U.S. stocks open little changed after Tuesday’s cyclically-driven weakness

  • European stocks are mixed at midday ahead of Thursday’s European Central Bank (ECB) meeting.
  • Asian markets were weaker overnight with Japan leading to the downside as the nation moves toward declaring a state of emergency over rising COVID-19 cases.

Technical update

The S&P 500 Index has posted its worst two-day loss in nearly a month to begin the week. Tuesday saw only defensive sectors close in the green, while reopening oriented sectors, including energy, financials and consumer discretionary, were hardest hit. The real estate sector broke out to all-time highs for the first time since February 2020 and has quietly pushed to 3-month relative highs versus the S&P 500.

COVID-19 news. The United States reported 65,000 new COVID-19 cases on Tuesday, in-line with the two week average as the pace of vaccinations appears to be offsetting the risk of variants (source: New York Times).

  • Just over 40% of the total U.S. population has received at least one dose of the vaccine, with roughly 3 million doses administered per day (source: CDC).
  • The Japanese government is moving toward declaring a state of emergency and tightening restrictions on activity to quell rising cases ahead of the summer Olympics.
  • Germany is set to approve laws to grant the federal government additional powers to fight the third wave of the pandemic

LPL Research in the Media

LPL Financial Chief Market Strategist Ryan Detrick discussed April seasonality with Fortune magazine. You can read the whole article here.

Peak Optimism?

While optimism surrounding the reopening is certainly understandable, LPL Research takes a look to see if sentiment is flashing a near-term contrarian warning sign for stocks. Learn more in this week’s Weekly Market Commentary.

Some Pros and Cons

On the LPL Market Signals podcast, Chief Market Strategist Ryan Detrick discusses some potential worries, why any weakness could be a buy the dip opportunity, and Sustainable Investing this Earth Day.

 

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