Sightline Weekly Market Update: Vaccination Roll-Out and Infrastructure Announcements Contribute to Strong Q1 Performance
The market rallied in the holiday-shortened week, with the S&P 500 crossing the 4,000-mark intraday Thursday for the first time to finish the week up 1.14%, the month 7.02%, and the quarter gaining 6.17%. Positive news on the US stimulus infrastructure package and progress in the vaccination rollout contributed to the quarter’s strong performance. Other benchmark indices also finished the week and quarter with solid performances. The TSX jumped 1.75% for the week and up 8.05% for the quarter. The Nasdaq, which has struggled as of late, managed a strong performance for the week as growth stocks outpaced value stocks for the first time in many weeks, was up 2.6% for the week, and finished the quarter 2.95%. The S&P 400 MidCap stocks eked out a small .44% gain on the week, ending the quarter just shy of 14%, while the Russell 2000 pushed 1.46% higher for the week, and like the MidCap index, closed out the quarter at 14%.
The rotation to more interest-sensitive value stocks from growth stocks showed solid quarterly performance for the first time in many years. Value stocks rose over 10% in the quarter, with large-cap having a strong month, however, trailing small cap for the quarter 5% to 12.75%. Momentum for the quarter trended negative, closing out the month down 20 basis points while high-dividend growers gained 7.5%. The quarter’s sector performance was similar in most developed markets, with energy playing a dominant role followed by financials, which do well in a rising interest rate environment, and industrials. In most markets, materials experienced substantial gains for the quarter; however, in Canada, precious metal stocks were a drag on the sector resulting in negative performance for the month. The other noticeable change in trend was information technology, which, after providing market leadership for several quarters, came under pressure as higher interest rates caused the analysts to re-state valuations.
On Wednesday, President Joe Biden unveiled his $2.5 trillion infrastructure package, which was less than initially anticipated but will be followed by a second follow-up package later in April. Key components included transportation (rebuilding roads, bridges, public transit, electric vehicles, Amtrak), homecare services, manufacturing, affordable housing, research and development in critical technologies, water infrastructure, schools, digital infrastructure, workforce development, and veteran’s hospitals. The President anticipates paying for his ambitious plan by raising corporate taxes and tax on higher-income individuals.1 Without any opposition in Congress, the Democrats are pushing through their dream agenda, which may stimulate in the short-term but may become costly longer-term in borrowing from future generations. On the other hand, if the plan is successfully executed, it could result in a more robust labor market, improved competitiveness, and productivity gains.
Once again, the economic news was somewhat supportive of the markets, with The Confidence Board Confidence Index surging in March to the highest reading in a year. The March reading is 109.7 versus the February reading of 90.4, the highest level since the beginning of the pandemic.2 On Thursday, the Institute for Supply Management said its index of factory activity bounced to a reading of 64.7 from February’s reading of 60.8. The current reading is the highest level since December 1983 and beat expectations of 61.3.3 Part of the snap-back is attributed to the February weather-related weakness. The labor market is mixed with the ADP Payroll reporting private payrolls jumping 517,000 in March from the 176,000 February print but lower than consensus forecasts of 525,000. The current jump in payrolls is the most significant spike of hiring since September’s 821,000 hiring binge.4 The Labor Department’s initial jobless claims leaped to 719,000 from the previous revised lower report of 658,000. Continuing claims for benefits from all programs fell 1,517,926 from the last week to 18,213,575.5
Currently, at least for the week, investor sentiment remains positive. With all the stimuli being pumped into the system, the expectations for growth and the economy regaining previous strength feed an optimistic future for equities. Government concerns of the pandemic are continually slowing down the economic re-opening; however, the data suggest economic activity is on the rise despite masking and social distancing. On the other hand, for the bond market, the future is not clear as inflationary pressures appear to be on the horizon.
Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.
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