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Equity markets try to maintain momentum from strong first quarter

April 05, 2021


  • Equities are set to continue their march higher following a better-than-expected payroll report Friday while the market was closed. Markets finished higher last week, with growth and momentum meaningfully outperforming value despite higher interest rates. March closed with a 6.1% gain for the S&P 500® Index, marking the 26th positive quarter in the past 30 dating back to 2013. Interest rates continue to be the primary worry among investors, with the 10-year Treasury yield at 1.74%, the highest level since last January.
  • There are emerging signs that the wave of retail interest in the equity market is fading, as attention shifts to consumption and travel. Retail trading flows have fallen nearly 20% since February, while individual purchases of stocks are down 60% and call option volume has dropped sharply. Despite the falling interest in “meme” stocks, equity fund flows experienced their largest monthly inflow in decades at nearly $75 billion per the Investment Company Institute, bringing the two-month total to nearly $120 billion. This, paired with share repurchase activity returning to record levels, is driving demand for equities.


  • Nonfarm payrolls surged 916,000 in March, the biggest gain since last August and well above the 660,000-consensus estimate. The unemployment rate fell by 0.2% to 60% despite a rise in the labor participation rate increasing to 61.5%. Strength was broad-based, led by the areas hardest hit by the pandemic, including bars and restaurants and construction. Average hourly earnings rose by 4.2% from a year ago, the lowest level since last March. There remains 7.9 million fewer Americans employed than before the pandemic, with the labor force down by 3.9 million. The U.S. is forecast to have a strong bounce in GDP growth this year both on an absolute basis and relative to the rest of the world, with the largest contribution to global growth since 1999.
  • Discussion continues around the infrastructure spending plan, with the first phase targeted at $2.3 trillion for roads, bridges, mass transit and broadband. The White House is proposing tax increases to pay for the program, led by a move in the corporate tax rate to 28% from 21% and increases on companies’ foreign earnings beginning next year. This would cut earnings for the S&P 500 by at least 10%, led by utilities, regional banks and retailers. Many Democrats are expressing a preference for borrowing instead of tax increases, though on top of the $5 trillion for coronavirus relief, debt levels are already as a percentage of GDP at levels not seen since World War II.
  • The housing market is at the hottest level since before the financial crisis. With the median sale price in many metro areas jumping by double-digits over the past year, and some geographies up 25%. Since the beginning of the pandemic, the median home price has jumped $50,000 to $370,000, while monthly debt service rose $100. The combination between low interest rates, a wave of millennials entering their early-30’s and a shift to work-from home is driving demand, while supply has never been tighter. New construction plummeted following the housing bubble and has yet to return, while baby boomers are choosing to stay in their homes rather than downsizing. Housing prices nationally jumped 12% in January, the fastest rate in 30 years.

What to Watch

  • Economic data this week includes PMI and durable goods on Monday, JOLTS job openings on Tuesday, consumer credit on Wednesday and producer price inflation on Friday.

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