It was another remarkable week in the markets last week, but the simplest takeaway was that the stock market continues to press into new all-time highs.  

Markets Update 

The S&P 500 is now up nearly 13% for the year. It was up over another 1% last week. In other markets, commodities are still on fire, the U.S. dollar has essentially given back its earlier gains on the year, and 10-year Treasury yields dropped from 1.65% to 1.60% last week. And commodities come into the new week ripping higher too. This includes the energy markets that are starting strong due to one of the largest pipelines in the US closed due to a cyber-attack last Friday. The Colonial Pipeline carries nearly half of the East Coast's fuel, and it’s not certain when it will be 100% operational.

Deeper Dive

One reason for how remarkable last week was is that we witnessed one of the more spectacular misses  in economic data in some time.  The non-farm payrolls (NFP) numbers, arguably the most important economic data release of each month (though NFP is officially a lagging indicator, it does impact policy decisions and therefore the markets including interest rates), was expected to show an increase of jobs of nearly 1,000,000 new workers. The “shadow forecast” (i.e., the “real” expectation) was probably even much higher, which created the set-up for a disappointing number anyway.

Well, it was much more disappointing than expected. The markets initially responded strongly, including sharp drops in rates and stock prices, but upon further reflection, it was ultimately deemed a good number for the markets. First, the report gives support for the Fed to keep rates low and for more fiscal stimulus. Second, additional numbers showed that average wages and average hours worked went up. The economy is expanding, and as a result, workers are getting paid more (the 0.7 month over month increase in wage works out to over 8% annualized wage growth). It also means the reopening trade will likely last longer than expected. That’s a good thing, in my opinion.

One of my early positions in my career supported fixed income and currency traders. It was a great learning experience. Among the many lessons I learned, included a few market sayings that still inform how I think about market conditions. One example is that “the market moves in the direction that causes the most pain.” In my opinion, the direction that would cause the most pain is for stock market prices to continue moving higher. Yes, there are pockets of excessive speculation among retail investors, but the markets are now dominated by professional/institutional investors. In my opinion, they are cautious, and they also aren’t taking large positions versus the U.S. market. All else being equal, in my opinion, that would suggest investors shouldn’t yet fade the momentum (absolute or relative) in the markets yet.

Economic Data

Corporate earnings season for the first quarter continues to impress, with 78% of companies beating earnings estimates and 75% are beating revenue estimates. According to Bespoke Investments data, these are some of the best earnings numbers since at least 2001. 

Lots of data coming up this week, especially inflation data.  We will get Consumer Price Index (CPI) data on Wednesday, with an anticipated increase in core CPI of 0.3%. We will get Producer Price Index (PPI) data on Thursday, with an anticipated increase in core PPI of 0.4%. Retail Sales are on Friday – expect another strong number, with consensus expectations of 1.0%.

Speaking of inflation, check out the upcoming OPS “Inflation Recipe” this Wednesday featuring some strategies from Brinker and Main Management.

Cryptocurrency

Did you see Elon Musk on Saturday Night Live? I found it fascinating and despite the media reviews I’ve seen, I actually thought Elon and the material was better than expected. You can check out the highlights here. Musk did move markets with this performance though. Dogecoin dropped over 30% after this explanation of cryptocurrencies. Outside of Dogecoin the last few days, it was a great week for Ethereum, which gained over 30% last week alone.

For more resources on the economy and markets, including Partner content, please review the OPS Financial Advisor Success Hub.

As always, please let me know if you have any feedback or questions. You can reach me at rusty@orion.com. If you have any questions on any strategy on the OPS platform, either how it should behave on a standalone basis or how it might blend with other strategies on OPS, please use research@orion.com. 

Have a great week!

 

1585-OPS-5/10/2021

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