Weekly Market Commentary - May 1, 2021
Summary
- Strong economic data.
- Equities hit new high.
- Yield curve steenpened.
Weekly Market Commentary
Economic Data
- Economic data were strong, showing broadened and fast recovery.
- Fed held interest rate unchanged.
- Core inflation still well below the Fed’s target.
Rates
- Yield curve steepened with US2s10s up 7 bps and US5s30s up 2 bps.
- Strong economic data caused a selloff in US treasury bonds.
Equities
- S&P 500, Nasdaq, and TSX reached a new high this week before selloff on Friday.
- Strong earnings from firms reported last week.
Other Markets
- Commodity prices continued to push higher, with Copper reached a 10-year high.
- Cryptocurrencies rebounded strongly after a massive selloff. Ethereum hit an all-time high.
What You Need to Know
Federal Reserve Meeting
- The Federal Reserve to hold interest rate unchanged as expected.
- Chairman Powell’s speech was dovish regardless of the recent strong economic recovery. In his speech, he focused on employment and core inflation which are still far from his target, full employment and average inflation of 2%.
- The Biden administration will need to borrow a lot more money to support his stimulus packages. There is no reason for the Fed to show any hawkishness and push rates higher because that will increase the cost of finance for the U.S. government. With that being said, we expect the Fed continues to be dovish.
- Chairman Powell said in his speech, “some markets are frothy.” We believe he meant the stock market and the cryptocurrency market.
Earnings Season
- Big tech firms such as Facebook, Apple, Amazon, Alphabet, and Microsoft reported upbeat earnings last week.
- The combined revenue of these five big tech firms was $1.2 trillion which is roughly the size of the Mexican economy before the pandemic.
- Caterpillar’s reported EPS was $2.87 vs $1.94 est. Revenue growth of 12% was primarily from construction, fueled by a strong housing market and infrastructure spending plan.
- Caterpillar‘s earning beat showed the manufacturing, industrial, and construction sectors are recovering.
- The demand growth for equipment from mining and energy companies is worth noting. We view this as companies are planning to increase production, to take advantage of the recent commodity boom. The increase in supply will cause downward pressure on commodity and energy prices.
Analyst's Disclosure: I am/we are long qqq.
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