Thursday, April 29, 2021

Top Story

Gross domestic product grew less than expected, but the U.S. economy was still hot out of the gates in 2021

• The U.S. economy grew 6.4% in the first quarter according to the Bureau of Economic Analysis, slightly less than the Bloomberg consensus forecast of 6.7%
• Heading into the year, many economists expected the first quarter to be a soft patch for the U.S. economy, with growth accelerating as the year goes on
• Personal consumption, the largest part of the economy, surged 10.7%, the second fastest pace since the 1960’s
• We take a closer look at gross domestic product in the first quarter in today’s LPL Research blog, available at 12p.m. ET.

Daily Insights

U.S. stocks poised for fresh all-time highs as technology earnings boost sentiment

• European markets are mixed in midday trading with Germany underperforming.
• Asian stocks were mostly higher overnight with Korea underperforming as investors continue to signal chip shortages, a theme mentioned in several earnings calls.
• Copper continues to march higher, topping $10,000 per metric ton for the first time since 2011

The FOMC wrapped up its two day meeting Wednesday without changes to policy measures

• As expected, the Federal Open Market Committee (FOMC) left the funds rate target range unchanged at 0–0.25% and left the policy outlook characterization and asset purchase policy unchanged.
• The committee acknowledged that economic activity had strengthened but noted “risks to the economic outlook remain.”
• The committee also acknowledged that inflation has risen primarily due to “transitory factors.”
• During the press conference, Chairman Powell noted that it was still too soon to begin “thinking about thinking about” removing monetary accommodation.
• The next FOMC meeting is June 15-16 when a new fed funds target rate and asset purchase policy decision will be released by the committee.

Jobless claims higher than forecasts, but continue to trend lower

• 553,000 Americans filed for unemployment insurance last week according to the Department of Labor, above the Bloomberg consensus forecast of 540,000.
• Jobless claims from the prior week, also a pandemic low, were revised higher by 19,000. The revision of the prior week allowed the streak of consecutive pandemic lows to remain intact.
• Continuing claims were also modestly higher than forecast, with 3.7 million workers remaining on unemployment insurance versus Bloomberg forecasts of 3.6 million.

Big increases in earnings expectations are not just a U.S. story

• Over the past month, as results have come in, S&P 500 earnings per share (EPS) estimates for the next 12 months have risen by 3.8%.
• For MSCI Europe, Australasia, and the Far East (EAFE) and emerging markets (EM) indexes, the corresponding increases are even stronger at 5.2% and 4.9%.
• Year to date, earnings growth estimates for 2021 for all three indexes have risen 13 percentage points.
• Bottom line: While developed international earnings were hit harder than the U.S. and EM during the pandemic, the earnings gap may be starting to narrow.
• We continue to recommend a tactical underweight to developed international equities, but the gap between regions has started to close in our view.

Technical update

Stocks have barely budged so far this week, as the S&P 500 Index has moved less than half a percent from its closing level on Friday. That is set to change this morning with U.S. equities solidly higher in early trading. The Nasdaq 100 Index needs just a 1.1% gain to break out above the April 16 all-time highs.

LPL Research in the Media

LPL Financial Equity Strategist Jeff Buchbinder was quoted on CNBC discussing the breadth of the earnings season.

Is All The Good News Priced In?

Investors are appropriately optimistic, given the backdrop of a dramatically improving economy, the rapid pace of vaccinations, massive levels of fiscal and monetary stimulus, and surging earnings. Learn more in this week’s Weekly Market Commentary.

Let’s Talk About Valuations

On the LPL Market Signals podcast, Chief Market Strategist Ryan Detrick and Equity Strategist Jeff Buchbinder discuss why stocks might not be as expensive as many think and how the economy continues to improve faster than expected.

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