Thursday, April 22, 2021

Top Story

Twin deficits and the Dollar

The United States dollar has bucked the consensus view and has been strong in 2021, as U.S. growth has outpaced the rest of the world sending real-interest rates higher. However, the U.S. economy continues to run a budget deficit and current account deficit, together known as the “twin deficits,” that should lead the U.S. dollar lower over the long-run. We take a closer look at the implications of a softer dollar in today’s LPL Research blog, available at 12p.m ET.

Daily Insights

U.S. stocks little changed after Wednesday’s rebound

• European markets are modestly higher in early trading following the European Central Bank’s (ECB) commitment to maintain the size of its bond-buying program at 1.85 trillion euros, but will increase the pace of purchases this quarter.
• Asian stocks finished mixed on Thursday with Japan snapping a three-day losing streak.

Jobless claims continue their momentum, falling to a new pandemic low

• Weekly filings for unemployment insurance fell to 547,000 versus Bloomberg consensus of 610,000, and below prior week’s surprisingly good number (source: Bloomberg).
• Continuing claims were slightly higher than consensus, rising to 3.7 million although still lower than the week prior.
• Easing pandemic restrictions and rising vaccinations have helped the labor market improve, though volatility may continue in certain states that continue to battle rising cases.

Earth Day 2021: Aligning with Sustainable Investing

Today the world will mark the 51st Earth Day. Earth Day marks a chance to learn about the environmental challenges we face, and reflect on the ways we can become more involved and make personal choices to elicit positive environmental and social changes. Increasingly, more investors are adopting a sustainable investing approach in order to align their investment portfolio with companies seeking to make a positive impact. Follow LPL Financial to learn more here.

Patience may be required with emerging markets

• We continue to like emerging market (EM) equities relative to developed international markets for better economic growth prospects, low valuations, and diversification benefits, despite geopolitical risks.
• However, EM’s relative economic growth advantage over developed international markets has narrowed, which may make it tougher for EM to outperform.
• The China-dominated and growth-heavy EM Index may also be temporarily held back by its growth tilt as value-oriented markets potentially get more of a reopening lift.
• We remain comfortable with modest allocations to EM equities, where appropriate, while acknowledging the case for EM may not be as strong as it was in 2020.

Very impressive earnings upside

• S&P 500 Index earnings are tracking to a 32% year-over-year increase, 8 percentage points above March 31 estimates (source: FactSet).
• We cited 30% earnings growth as a possibility in our April 12 Weekly Market Commentary, but didn’t expect to be tracking above that target after only 89 index constituents reported.
• S&P 500 Index consensus earnings per share for 2021 have impressively risen from $176 to $180 during April, above the high end of our forecast range of $175—$177.50.

Technical update

The materials sector led markets higher Wednesday, as the S&P 500 gained 0.9%. Materials have experienced a tailwind from a weaker dollar recently, as the U.S. Dollar Index (DXY) is down more than 2.3% so far in April. The DXY Index has broken to its lowest level since early March, and is within just a few basis points of falling below its 100-day moving average, an important trend line over the past year.

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.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data are from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

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