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Reopening momentum drives markets to record highs

April 12, 2021


  • Equity markets delivered their third-straight positive week, with the S&P 500® Index breaking to a fresh record high. Leadership shifted back to growth and momentum names this month, with growth beating value (6% vs. 2%) and large caps beating small caps (4% vs. 1%). Technical indicators show a market that is overbought, multiple sentiment indicators in the 90th percentile of historical observations. A record 95% of the S&P 500 is above the 200-day moving average.
  • Interest rates have settled following the spike in the 10-year Treasury yield to 1.75% in late March, falling to the current level of 1.67%. This will be this week with a record $373 billion in issuance over the next three weeks.
  • This shift in investor behavior has been a primary driver in the strong move in equities. Global flows into equity funds over the past five months have totaled $576 billion, which exceeds the $425 billion over the previous 12 years. As retail investors aggressively buy, Bank of America data shows large institutional clients were net sellers of equities and hedge funds are beginning to join them.


  • First-quarter earnings season unofficially launches this week, with the consensus estimate showing growth of 25%, and could possibly eclipse the best rate of growth in more than a decade. Since the beginning of the year, the estimate has increased 6%, which compares with the average from the past 10 years of a 4% decline. Strength is coming from easy comparisons, reopening momentum, resilient margins and continued work-from-home trends. Attention will be paid to management commentary around supply constraints, input cost pressures, pricing power and reopening momentum.
  • Fed Chair Powell told CBS’s “60 Minutes” that the economy is at an “inflection point,” with growth and employment expected to accelerate in response to increasing vaccines and tremendous fiscal and monetary support. While the comments were more upbeat than his recent remarks, he also stressed it would be “highly unlikely” that the Fed would raise rates this year. High-frequency data shows a record level of growth in recent weeks, reinforced by strong durable goods and ISM data. Inflation remains the primary concern of analysts, with producer price inflation up 4.2% from a year ago, more than double the Fed’s 2% target.
  • President Biden will meet with Republican leaders Monday to discuss common ground on infrastructure. Expectations for the meeting are limited, with Democrats still expected to pursue the reconciliation process to pass the $2.25 trillion first phase. There is pushback on the plan to raise the corporate tax rate to 28% from 21%, with many predicting it ends up at 25%, while others expect it to be delayed. If enacted as proposed, the 28% tax rate, increased foreign tax rate and minimum corporate tax rate would trim roughly 7% from 2022 earnings. Other options include more heavily taxing the wealthiest households, increasing the gas tax, introducing a mileage tax or greater monetization of the electricity grid.

What to Watch

  • Inflation data will again be in focus, with CPI being released on Tuesday. Other data include NFIB small business on Tuesday, the Fed’s beige book on Wednesday, retail sales and industrial production on Thursday, and housing starts and consumer sentiment on Friday.


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