Hello, I’m Greg Curvall, Senior Portfolio Manager with Fifth Third Bank.
U.S. equities rose last week, making new all-time highs, with the Dow breaking 34,000 for the first time on the back of better-than-expected economic data and a solid start to the corporate earnings season. The yield on the 10-year Treasury fell 7 basis points, ending the week at 1.59%.
The Covid vaccination rollout continues to exceed expectations. The White House said Friday that the U.S. has administered 200 million doses of Covid-19 vaccines, with more than 3 million doses a day being administered. There have been some setbacks however. The U.S. paused the use of the Johnson & Johnson one-dose vaccine as health regulators investigate reports of dangerous blood clots.
Banks and other financial stocks kicked off earnings season last week, with big financials mostly reporting solid gains. Banks have strongly benefited from a steeping yield curve as interest rates on longer-maturity debt has gone up in recent months while the Fed keeps short-term rates anchored near zero.
Economic data was positive across the board last week. U.S. small business optimism rose in March to a four-month high as business owners anticipated stronger sales and more expansion opportunities.
The employment landscape continues to improve as well. Weekly unemployment claims dropped to a new pandemic low of 576,000. Retail sales, a reliable measure of economic activity, surged nearly 10% in March, the second largest increase going back to 1992 and much better than anticipated. This is an important indicator because consumer spending drives 70% of U.S. GDP. Clearly many of the government stimulus checks are being put to use.
U.S. consumer prices, a measure of inflation, accelerated in March amid a rebound in travel and commuting, rising 0.6% from a month earlier, and 2.6% year-over-year.
The U.S. housing market remains tight as housing supply has been limited. However, housing starts rebounded sharply last month, the biggest increase since 2006 after severe winter weather set back residential construction in February. Applications to build houses, a proxy for future construction, also surged.
Looking outside the U.S. economy, Chinese GDP surged 18% year-over-year in the first quarter, as consumer spending rose ahead of expectations. Notably, the figure was a comparison to a year ago when large parts of China's economy were shut down due to COVID-19.
In the week ahead, around 80 S&P 500 companies report first quarter earnings as earnings season heats up, though the economic calendar is much lighter than normal. U.S. existing home sales are expected to ease, though remain robust, in March. Housing inventory remains tight and borrowing costs have been edging higher, making home ownership more expensive. This week we'll also get leading economic indicators as well as new home sales and preliminary April purchasing managers indexes (or PMIs).
As always, will be watching and reporting back to you next week. Thank you.