Week in Review: April 2, 2021
Recap & Commentary
Markets ended the holiday-shortened week higher, with the S&P 500 closing at a new record high and above 4,000, for first time ever. The 10-Year Treasury yield ended the week at 1.72%, up 0.04% from the prior week’s close, but down 0.05% from its intraweek high. With equity markets closed on Friday, it was unclear what investor reaction was to the March jobs report. However, on the surface the report was strong, suggesting that the continued rollout of vaccines and further relaxation of restrictions is having a positive impact on hiring. With the expectation that economic data will continue to improve in the near-term, it remains to be seen how investors will react. Will they view improving data positively with respect to the broader recovery, or negatively with respect to the increased likelihood for higher interest rates and inflation?
On Wednesday, President Biden outlined his $2.3T infrastructure plan which would address numerous current and future infrastructure needs. Under the plan, funding would be provided for “traditional” infrastructure such as roads, bridges, public transit, and the electrical grid, as well as support for technologies such as electric vehicles, clean energy production, and domestic semiconductor manufacturing. The bill would also provide funding for workforce development, schools, hospitals, and affordable housing. To help fund his plan, Biden proposed raising the U.S. corporate tax rate from 21% to 28% and raising taxes on companies’ foreign income from 10.5% to 21%. As with any such plan, the final version is likely to differ significantly from the initial proposal.
Economic Bullet Points
Economic data released during the week highlighted the accelerating pace of the current economic recovery.
Nonfarm payrolls expanded at the fastest pace since last August, adding 916K new jobs. That was well ahead of the expected gain of 647K and almost double the 468K new jobs added in February. Leisure and hospitality had another strong month adding 280K jobs, bringing total gains in the sector since the start of the year to 647K. Improving job prospects led 347K individuals to enter the labor force, boosting the labor force participation rate by 0.1% to 61.5%. Headline unemployment declined 0.2% to 6.0%.
Manufacturing activity, as reported by industry group ISM, reached its highest level in 37 years, propelled by large gains in new orders, backlog orders, production, and employment. A number of companies reported that they are currently struggling to meet surging demand.
Consumer confidence experienced its largest one-month gain since 2003, while surging to its highest level in a year. Strong gains in consumers’ views on both current and future conditions were boosted by the ongoing rollout of vaccines as well as additional fiscal stimulus.
In an extreme case highlighting the risks of amateur trading, one Robinhood user accumulated a 2020 tax bill of $800,000 despite only generating a net gain $45,000 during the year. The outsized tax bill was due to violations of the wash sale rule. The trader was reportedly trading up to $2mm in dollar volume daily, despite having an account balance of under $100k.
Market Indices Week of 04/02
|U.S. Bond Market||0.2%|
|10-Year Treas. Yield||1.72%|
|WTI Oil ($/bl)||$61|
The Week Ahead
- ISM Services
- Factory Orders
- Trade Balance
- Producer Inflation (PPI)
- Weekly Jobless Claims