Despite a relentless drumbeat of dire economic data releases again last week (ADP, Employment Report et. al.), markets moved sharply higher. Given the economic backdrop we find ourselves mired in, the fact that markets have continued to trade higher is a bit mystifying – even to me.
As a reader of this weekly note, you know I have been optimistic about US equities throughout the COVID-19 collapse. And to be certain, the historic efforts to support the economy through federal intervention in the form of spending have without question fueled much of the investor appetite we see being priced into markets. Yet even I find myself shaking my head at the strength of this market, and the breadth of the advances posted since March 23.
The Nasdaq Composite is the best case in point of the three major US equity market indices. As of Friday’s close, the Nasdaq Composite is actually positive for the year (209 points or 2.3%), though it remains 7% off its all-time high.
Despite a relentless drumbeat of dire economic data releases again last week (ADP, Employment Report et. al.), markets moved sharply higher. Given the economic backdrop we find ourselves mired in, the fact that markets have continued to trade higher is a bit mystifying – even to me.
As a reader of this weekly note, you know I have been optimistic about US equities throughout the COVID-19 collapse. And to be certain, the historic efforts to support the economy through federal intervention in the form of spending have without question fueled much of the investor appetite we see being priced into markets. Yet even I find myself shaking my head at the strength of this market, and the breadth of the advances posted since March 23.
The Nasdaq Composite is the best case in point of the three major US equity market indices. As of Friday’s close, the Nasdaq Composite is actually positive for the year (209 points or 2.3%), though it remains 7% off its all-time high.
For one thing, investors have clearly been looking at the post-pandemic landscape with an eye on what our “new normal” looks like. Cloud based and virtual businesses of all shapes, sizes, and purposes have clearly found significant interest – at the expense of the old established names – at least for the time being. It also speaks to a risk appetite that has taken many market observers by surprise.
The simple fact that US equity markets careened into a bear market in record time only to recover a majority of their loses in record time is frankly a historic anomaly. That said, it does not disqualify the merits of our Nasdaq-led rebound. The future is increasingly being framed by companies that are free of what was once considered predictive and reliable. Rather, investors see opportunity and a future that rewards an approach to life and commerce that is decidedly less traditional, and I would argue, more appropriate in many respects.
This week’s economic calendar highlights:
The Consumer Price index reading for April is released Tuesday morning. Econoday consensus is calling for a top-line decline of -0.8%. March’s CPI reading was -0.4%. On a Y/Y basis, CPI is expected to be 0.5%.
On Wednesday we receive the Producer Price Index – Final Demand reading for April. And again, Econoday is expecting a sobering result for the month. PPI-FD M/M is expected to be -0.5%. The Y/Y reading is expected to be -0.2%. The balance of the data in this report is in keeping with non-existent pricing power on the part of producers. The EIA Petroleum Status Report for the week ending 5/8 is out at 10:30 am Wednesday. Last week’s report reflected a mixed picture with inventories of crude and distillates rising modestly, while gasoline inventories tightened.
Weekly Jobless Claims for the week ending 5/9 are due out Thursday morning at 8:30. In many respects, this weekly report has become the most emblematic data point of the COVID-19 pandemic’s impact on the US economy. Econoday is calling for a weekly claims figure in the 2,500 K area. As dire as that is––and make no mistake about it, it is dire––that figure stands in sharp contrast to what the results for this reading were only 2-3 weeks ago. The four-week moving average level stands at 4,174 K.
Retail sales figures for April will be released Friday morning. March’s results were chilling. April’s will be worse. Econoday consensus is -11.2%, on a M/M basis. Retail sales less autos M/M are expected to be -8.6%. April’s Industrial Production figures will be released by the Federal Reserve on Friday. Production M/M is expected to contract sharply (-11.5%). Manufacturing M/M is also expected to contract by an equally sharp -11.4%. Capacity Utilization is expected to fall to 64.1% from March’s 72.7%. The University of Michigan’s Consumer Sentiment reading for May (p) is expected to drop to 66.0 from the previous reading of 71.8.