The 1% Move Report

Timely commentary on market performance whenever the S&P 500 changes more than 1% in a day.






Wealth Management — April 1, 2021

What Happened in the Markets?

  • US stocks moved higher on Thursday as the S&P 500 gained 1.2% to close at 4,020. With the rally, the index is now up 7.0% year to date.   
  • Equities ended the holiday-shortened week on a strong note Thursday, with the S&P 500 closing above the 4,000 price mark for the first time in history as the index made a new all-time high. Late Wednesday afternoon, the White House unveiled a new infrastructure spending proposal totaling in excess of $2 trillion; while the plan will face scrutiny in Congress in the weeks and months ahead, it did appear to drive optimism in markets Thursday. Additionally, the ISM Manufacturing PMI came in far higher than expectations, rising to its highest level since 1983, which also likely contributed to Thursday's rally. Equity markets will be closed tomorrow in observation of Good Friday, while bond markets will close at noon eastern time.
  • Eight of the 11 S&P 500 sectors finished the session higher, with Energy (+2.7%) and Information Technology (+2.1%) outperforming the broader market, while Health Care (-0.2%) and Consumer Staples (-0.2%) lagged. 
  • Rates were lower across the curve, with the 10-year Treasury yield at 1.68% as of the 4 p.m. equity market close. Gold was 1.2% higher while WTI oil closed sharply higher to just above $61 per barrel. The US dollar weakened modestly in the trading session, as measured by the US Dollar Index. 

Catalysts for Market Move

The S&P 500 rallied 1.2% on Thursday, finishing the holiday-shortened week up 1.1%. With the rally, the S&P 500 closed above the 4,000 price market for the first time in history. Optimism appeared to be centered around the recent news out of Washington, as the White House released a new potential infrastructure spending package aimed at boosting the economy in the years ahead. While the proposal is just in the beginning stages and will most likely be met with scrutiny in Congress, markets took the unveiling as a positive sign that begins the negotiation on potential infrastructure investment. Growth and tech shares led the market, and the Nasdaq 100 finished the week outperforming the S&P 500 handily. In economic news, the ISM manufacturing PMI posted at 64.7, its highest reading since 1983 and well ahead of the consensus of 61.5. While markets are closed tomorrow in observance of Good Friday, the nonfarm payrolls report will be released at 8:30 a.m., with analysts expecting a 650,000 increase in payrolls in the month of March.

The Global Investment Committee’s Outlook

Record and unprecedented stimulus from both the Fed and Congress has unleashed a V-shaped recovery in global trade, manufacturing, goods retailing, and housing. That momentum, coupled with the resolution of the US Presidential election and much better-than-expected initial trial outcomes for COVID-19 vaccines, has lifted equity markets to new all-time highs. Although investors are correct to be concerned about index level valuations, which have reached multi-decade extremes at more than 22x forward earnings, the economic and profit dynamics in 2021 support our base case year-end target of 3,900 for the S&P 500. Another round of fiscal stimulus, continuing Fed accommodation, and swelling pent-up demand for consumer services, may also support economic growth acceleration to 7%-8% real GDP, with inflation rebounding to more than 2%, a scenario that should support 27% year-over-year profit gains. However, optimal navigation of this burgeoning new business cycle will require care as Treasury rates are likely to move higher, creating a headwind for long-duration assets. In stocks, our preferences remain focused on quality and valuation support, attributes that remain in small caps, international stocks and cyclicals, including financials, which should benefit from the steeper yield curve. Dollar weakness is likely to continue as policy choices are debasing and relative growth outside the US becomes more compelling, supporting the case for emerging markets and commodities. In fixed income, the challenge is two-fold: Generating sufficient income, while also preserving capital, requires a diversified and active exposure, with our preference toward a mix of corporate credit (IG and HY), preferreds, leveraged loans, asset-backed securities, including select mortgage-backed, and dividend-paying stocks. Capital preservation and portfolio hedging from equity volatility may be achieved with a combination of cash and ultra-short duration instruments, and absolute return hedge funds. Real assets like gold, infrastructure and real estate for inflation support should be bought opportunistically.

Market data provided by Bloomberg.

Dow Jones Industrial Average (DJIA): A price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry.

NASDAQ Composite Index: A broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market.

S&P 500 Index: The Standard & Poor's (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization US stocks.

US Trade-Weighted Dollar Index: A weighted average of the foreign exchange value of the US dollar against a subset of the broad index currencies that circulate widely outside the US.

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