Hello, this is Tom Jalics, Chief Market Strategist at Fifth Third Bank.
Major U.S. equity benchmarks rose for a third straight week, with the S&P 500 Index closing at yet another record last Friday as investors dismissed lingering inflation concerns and focused on economic growth prospects. The S&P 500 gained 2.8% in total return for the week, while the tech-heavy Nasdaq Composite gained 3.1%, and the Dow Jones Industrial Average was up 2.0%. Bond yields were virtually flat for the week, with the yield on the 10-year U.S. Treasury down less than 1 basis point to 1.66% and the 2-year yield steady at 0.16%. Gold finished the week at $1,743/ounce, up 0.8% for the week. West Texas Intermediate Crude Oil ended the week at $59.36/barrel, down 3.4% for the week.
It was a quiet week from a headline perspective. Reassuring dovish comments from Federal Reserve meeting minutes, positive U.S. vaccination momentum, as well as encouraging economic data seemed to be the key drivers for the financial markets.
Investors were encouraged as Federal Reserve officials provided reassurance that policy will remain supportive, a key tailwind for the continued positive performance of risk assets. The Federal Open Market Committee (FOMC) meeting minutes revealed that Fed officials were unanimous on the near-term policy outlook. "Participants noted that it would likely be some time until substantial further progress toward the committee’s maximum-employment and price-stability goals would be realized," according to minutes from the March 16th-17th FOMC meeting published last Wednesday. On Thursday, Fed Chair Powell pledged to get the U.S. back to "a great economy," speaking on a virtual panel. He said the central bank has the tools to curb any inflation pressures, with officials expect to be temporary.
Last week was a busy and largely encouraging one on the domestic economic calendar. The ISM Services PMI jumped to 63.7, the strongest reading dating back to 1997. Measures of business activity and orders advanced to new highs. The data highlight that fewer business restrictions and increasing economic activity is supporting a rebound in services, which covers the industries that make up almost 90% of the U.S. economy. Additionally, U.S. job openings rose to a two-year high in February, with the number of available positions increasing to 7.4 million from an upwardly revised 7.1 million in January, according to the Job Openings and Labor Turnover Survey report. Healthcare, accommodation and food services led the gains in vacancies. U.S. producer prices rose more than expected last month, a sign that inflationary pressure may be building. The producer price index for final demand increased 1.0% in March, twice the median projection. From a year earlier, PPI rose 4.2%. Excluding volatile food and energy prices, the so-called core PPI rose 3.1% year-over-year. Producer prices are one of the inflation measures that Fed officials expect to be temporary.
In the week ahead, banks and financial firms begin reporting first quarter earnings, kicking off earnings season. According to FactSet, Wall Street is expecting a 24.5% increase in S&P 500 earnings, which would mark the highest year-over-year growth since the 26.1% seen in the third quarter of 2018. The Fed hosts a virtual event on racism and the economy Tuesday, with several regional presidents participating. Fed Chair Powell and Vice Chair Clarida both speak at separate events Wednesday. The U.S. economic calendar is busy, including small business optimism, consumer prices, industrial production, retail sales, and housing starts. March retail sales released on Thursday are expected to show a surge as stimulus checks were delivered to Americans.
As always, we’ll be watching and reporting back to you next week. Thank you.
