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Week in Review: April 23, 2021

Recap & Commentary

Markets ended the week mixed, with the S&P 500 snapping its four-week winning streak. Trading during the week was choppy as investors digested first quarter earnings, news of President Biden’s desire to raise taxes, and rising levels of global coronavirus cases.

On Thursday, the White House announced a proposal to raise the capital gains tax on those earning $1M or more to 39.6%, up from the current 20% rate.  According to IRS data, in 2018 only about 0.3% of U.S. taxpayers met the $1M threshold. The proposal was consistent with Biden’s previous comments about wanting to raise taxes on those earnings more than $400K/year.

After receding during January and February, global coronavirus cases have steadily risen since the start of March. Of late, the increases have been led by India, which recorded over 300K new cases per day on multiple days during the week. That represents a sharp reversal from February when cases fell as low as 10K/day.  In the US, after a brief pause due to concerns about blood clots, the CDC reaffirmed its support for the J&J vaccine.

Through Friday, 25% of S&P 500 companies had reported first quarter earnings, with 84% of those companies beating analyst expectations. According to industry group Factset, if 84% were the final percentage for the quarter, it would be the highest level since Factset began tracking the metric in 2008.  Currently, 1Q21 earnings are forecasted to grow 33.8% from 1Q20.

Economic Bullet Points

On the surface, housing data appeared mixed as existing home sales declined and new home sales surged. While existing home sales declined nearly 4% in March, that was largely attributable to near record lows for supply. Reduced inventory, combined with rising prices, rising mortgage rates, and falling affordability all weighed on sales. Compared to a year ago, existing home sales increased 12.3%, while the median price jumped 17% to $329K.

New home sales jumped 20.7% in March, to an annualized rate of 1.021M, the fastest pace since August 2006. The optics of the increase were aided by the fact that new home sales in February fell to an 8-month low, impacted in part by severe winter weather. Unlike existing homes, the median price increase for new homes from a year ago was just 0.8%, to $328.2K.

Preliminary data released by industry group Markit, showed that activity in both the manufacturing and service sectors continued to increase in the first half of April. Similar to the recent strength seen in ISM data, both sectors set new record highs during the first part of the month, suggesting that the current economic recovery continues to accelerate.

Weekly jobless claims declined 39K to 547K, the lowest level since March 2020, supporting the notion that the economic recovery continues to accelerate. However, the current level of 547K remains over twice the 2019 weekly average, a good reminder of the pressures continuing to face labor markets.

Of Note

Bitcoin fell over 20% during the week after hitting a new record high of $63,500 in mid-April. The decline was attributed in part to President Biden’s proposal to raise the long-term capital gains tax rate.

Market Indices Week of 04/23

S&P 500-0.1%
Small Caps0.4%
Intl. Developed-0.5%
Intl. Emerging0.3%
Commodities2.2%
U.S. Bond Market0.2%
10-Year Treas. Yield1.56%
US Dollar-0.8%
WTI Oil ($/bl)$62
Gold ($/oz)$1,777

The Week Ahead

  • 1Q21 GDP
  • PCE Inflation
  • Durable Goods Orders
  • Pending Home Sales
  • Consumer Confidence
  • Personal Income/Spending
  • Consumer Sentiment
  • Weekly Jobless Claims

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