April Looks Promising, But What About The Rest Of 2021?

Summary

• Q1 2021 closed with the Dow leading the major market indexes, up 7.76%, vs. +5.77% for the S&P 500 and a tepid +2.78% for the Nasdaq Composite.
• Five regional Federal Reserve Banks reported super-strong readings for their five regional economic indexes. ISM manufacturing PMI index of factory activity came in at 64.7 in March, a 37-year high.
• Eurozone factory activity has picked up to reach its fastest growth rate in at least two decades, according to IHS Markit, whose PMI for Europe has risen to 62 in March, up from 57 in February.

By Gary Alexander

The first quarter of 2021 closed with the Dow leading the major market indexes, for a change, up 7.76%, vs. +5.77% for the S&P 500 and a tepid +2.78% for the Nasdaq Composite. In fact, the Dow beat Nasdaq by the widest margin in any quarter in the last 15 years - since 2006. That's quite a shift from 2020.

Now, we look forward to a hot first-quarter earnings reporting season and favorable April seasonality.

As the researchers at Bespoke Investment Group (BIG) have shown, April is the best market month (by far) over the last 50 years, #2 over the last 20 years, and #3 over the last century (see their table, below).

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Over the last 50 years, the Dow has averaged a gain of 2.24% in April, with November at #2, far behind with 1.63% average gains. Since 2001, November is tops (+2.61%), with April trailing slightly (+2.51%), but April has risen in 17 of 20 years (85% of the time), while November is up only 15 of 20 times (75%).

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Since 1983, April's gains have been steady (blue line, below), but for the last 10 years (green line), there has been an early dip first, then a mid-month plateau, with most gains coming in the last 8-10 days of April. In the last 10 years, Bespoke says, April has risen nine of 10 times, with average gains of +2.34%.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Uncle Sugar's Monetary Stimulus Machine is Just Getting Warmed Up

Looking beyond April, the old saw says, "Sell in May and Go Away," but that rule hasn't held true in recent years, and it should ring especially hollow this year as we emerge from the Covid-19 lockdown.

Economists now estimate that the U.S. economy could grow by 6% to as much as 7% this year, fueled by a massive fiscal stimulus and rollout of vaccines that are expected to get the pandemic under control. That would be the fastest growth rate since 1984, during Reagan's "Morning in America" re-election campaign vs. Walter Mondale. This is no impossible dream, when you consider that a 7% gain would be a rebound from last year's 3.5% contraction - the worst year since the 11.6% decline in GDP in 1946 after WWII.

An unprecedented amount of liquidity has entered the economic system in the last year. According to the Peter G. Peterson Foundation, the total Covid-19 relief from government programs is $5.3 trillion so far.

This is Modern Monetary Theory (MMT) in action: Spending without consequences (yet). And now, an infrastructure bill will add $2.3 trillion. A new tax bill may (or may not) pay for part of this spending spree, but taxes will come nowhere near covering all the costs. We're paying most bills with promises.

The most recent installment included $1,400 checks arriving in the accounts of tens of millions of us, further fueling the economy. In the past 12 months (through January), our demand deposits (basically, checking accounts) have risen 112.5%, gaining $1,780.4 billion, while M2 has gained nearly $3,978.2 billion, rising in an almost vertical Eiger-like El Capitan ascent - unprecedented in American history.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

This fuel creates a "sugar high" in the economy, courtesy of Uncle Sugar. According to John Hilsenrath, writing in The Wall Street Journal (in "Households Primed to Spur Economy," March 22, 2021):

"Households have entered 2021 armed with boatloads of cash - on average - and the cleanest balance sheets they have had in decades. Households finished 2020 with $14.1 trillion combined in checking and savings accounts, compared with $11.4 trillion in 2019, according to Federal Reserve data.

"Their debt-service burden-the percentage of after-tax income used to pay off debt-fell to its lowest level in records going back to the early 1980s. This is a much different story than was the case when the U.S. was coming out recession in 2009. The debt-service burden then was at record highs..."

With that much money in hand, we're now fueling a manufacturing surge ready to meet new demand at a time when the pandemic may be winding down. That combination could fuel 6-7% GDP growth.

Two Major Manufacturing Indexes Reached Their Highest Level Since 1973 And 1983

Five regional Federal Reserve Banks reported super-strong readings for their five regional economic indexes. According to MarketWatch, the Philadelphia index is now at its highest level in nearly 50 years (since 1973), while the five combined indexes (New York, Philadelphia, Richmond, Kansas City, and Dallas) are at their best reading since 2004. The Philadelphia region's business index leaped from just 23.1 in February to 51.8 in March, its highest reading since 1973.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

On top of that, we learned last Thursday that the widely watched Institute for Supply Management (ISM) manufacturing PMI index of factory activity leaped to 64.7 in March, a 37-year high - the highest reading since December 1983, as the dawn was about to break on 1984, when GDP reached 7.2%, the most robust GDP growth rate of the last 60 years. (Any ISM reading above 50 indicates expansion, and 65 is red hot.)

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The U.S. is not alone. Eurozone factory activity has picked up to reach its fastest growth rate in at least two decades, according to IHS Markit, whose PMI for Europe has risen to 62 in March, up from 57 in February. Global demand is just what the doctor ordered to help revive the lagging European economy.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

It's amazing that we can reach this level of factory activity during the latter stages of a pandemic, but it reflects the pent-up revival of animal spirits among workers and consumers alike. We will not be caged.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Disclaimer: Please click here for important disclosures located in the "About" section of the Navellier & Associates profile that accompany this article.

Disclosure: *Navellier may hold securities in one or more investment strategies offered to its clients.

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Comments

[frmrlyVZguy]

@louis navellier author et al
Over 40 years ago my father had a suburban business investment and on the neighboring home development lived Fritz Mondale’s brother and family. Fritz’s high-school-aged niece Nikki worked part-time for my father’s company. They were an undeniably decent family and we wouldn’t even blink at sharing a pew on a Sunday. Nikki died tragically when she raced a train to a crossing and lost, taking two other of her bffs with her. The wake was the only time I met Fritz.

Mondale’s party was also undeniably decent back in those days. My parents were in the other, but the disagreements were more in sourcing funds for public projects, local, state or federal funding, and not so much over principles. Today the DNC seems modeled after Hezbollah more than Humphrey.

40 years before this flashback memory our world was in a race with a freight train called “enlightenment” and trying to ensure the correct engineer was at the helm. A madman chancellor was at the wheel and he took several, too many, of his bfs and bffs with him to an eternity of disrepute when he lost the race. We thought that was the end of it.

Today there is another madman who thinks he knows best racing the train. He is ignoring the hard fought battles that come with such deeply dear matters over life and property and flaunting the norms of decency. He thinks he has the support of International opinion makers in London and Rome and that is enough to deploy war-tactics.

There are 9 billion-ish souls on earth. For all of these 80 years we have proven our fierce devotion to decency in the rough and tumble event called life. Rome has forgotten from whome comes both Grace and Power. There is madness in the West and the East. One infects the other. This should not be. We can do better. It begins by remembering, soberly, lost souls and hard won principles.

We will need to give preferential treatment to those most closely aligned with our principles of decency until madness withdraws or dies away. I expect these decisions have already been made and 2H21 will be restored for our markets. PRC will agree or diminish as they choose.

There is a frantic race to replace fire-lost CDN servers and upgrade and expand in the EU block. They have learned the hardest lesson of all the hardest way possible: a wolf cannot be domesticated.

Select companies will benefit most from this new cycle of spending but the rising tide will raise very many boats across many sectors and nations.

Godspeed to All who desire what is good and Right. I pray that includes PRC sooner than later.

[kimbillro]

@frmrlyVZguy , "There is madness in the West and the East."

"East is East and West is West and never the twain shall meet." - Rudyard Kipling

[1575]

SPX will be between 4500~5000 by end of 2021 ..

[kimbillro]

@1575 , It might reach it by late August 2021...sooner than ya think!

[smokyy]

Yes all good points that's why Oppenheimer will sell out now and not wait

[kimbillro]

@smokyy , Did you read that somewhere?

[smokyy]

@kimbillro we are in the business or calling the future!

[kimbillro]

@smokyy , I don't joke or smoke but I have nothing against Smokey The Bear @smokyy !