Market Perspective for April 25, 2021

Small-cap stocks led the way for gains across the major indexes on Friday to wrap up the trading week. The S&P 500 gained 1.09 percent, the Dow 0.67 percent and the Nasdaq 1.44 percent for the day. The Russell 2000 increased 1.76 percent on Friday. iShares MSCI EAFE ETF (EFA) also rose 1.02 percent on Friday.

The Russell 2000 Index gained 0.55 percent on the week, while the S&P 500, Nasdaq and Dow Jones Industrial Average fell 0.13 percent, 0.25 percent, and 0.43 percent, respectively.

Investors bought healthcare stocks this week, sending SPDR Healthcare (XLV) up 1.80 percent. iShares U.S. Medical Devices (IHI) climbed 2.77 percent, SPDR S&P Biotech (XBI) 2.13 percent and iShares U.S. Pharmaceuticals (IHE) 1.00 percent. SPDR Industrials (XLI) advanced 0.43 percent and SPDR Materials (XLB) 0.33 percent.

Netflix (NFLX) and Intel (INTC) both disappointed investors with their guidance. Netflix also delivered much less subscriber growth than anticipated. Netflix fell 7.52 percent and Intel 8.51 percent on the week. SPDR Technology (XLK) dipped 0.42 percent and SPDR Communication Services (XLC) 0.48 percent.

Mattel (MAT) shares increased 0.81 percent after positive sales reports for the first quarter beat consensus expectations on the toy-maker’s earnings. Likewise, Snap (SNAP) shares surged 7.45 percent on Friday based on its continued stream of new users and heightened earnings above consensus estimates.

Although there were a couple of high-profile earnings misses from Netflix and Intel, the overall earnings seasons remains strong. This week’s results boosted the S&P 500’s blended earnings growth rate (reported and remaining estimates) to 33.8 percent versus the first quarter of 2020. Analysts predicted the S&P 500 companies would grow earnings 23.8 percent coming into earnings season.

On Friday, crude oil futures (CL=F) saw an increase of 0.99 percent to $62.04 a barrel. The Energy Select Sector SPDR Fund (XLE) also increased 0.91 percent on Friday.

Gold futures (GC=F) dropped 0.3 percent to $1,776.70 per ounce on Friday.

On Friday, the 10-year Treasury note yield closed at 1.57 percent. It has declined steadily through April.

Economic data released during the week indicated that initial jobless claims for the prior week beat the expected 610,000 at only 547,000 new claims. The latest data on continuing jobless claims was only slightly off from the expected 3.650 million at 3.674 million.

Markets resisted news over the week that President Biden plans to increase taxes, including the capital gains tax rate from 20 percent to 39.6 percent for individuals earning at least $1 million a year. In addition, the Biden administration has floated an increase for the corporate tax rate from 21 percent to 28 percent.

IHS Markit reports on Friday showed that the U.S. manufacturing and service sectors output levels are at record highs due to widespread economic re-openings and broad progress on mass vaccinations in the U.S. The April preliminary purchasing managers’ index (PMI) for the manufacturing sector increased from 59.1 in March to 60.6. Similarly, the PMI for the services sector rose from 60.4 to 63.1 in April, indicating the fastest growth rate in nearly 12 years. The U.S. services sector saw even faster growth, with the PMI rising to 63.1 from 60.4 in March. This was faster than the 61.5 expected, according to Bloomberg data, and also marked a series high.

Existing home sales hit an annualized pace of 6.01 million in March, down slightly from February. New home sales spiked to an annualized pace of 1.02 million though, the highest reading since 2006. The difference is in part due to how these data are collected. The former data set waits until a sale is final before counting it, while the new home sales report goes by contract signings.

For the coming week, economic data to be released includes the latest levels of personal income and spending, GDP and inflation.

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