Equities finished out April on a relatively quiet note but remain up over 10% so far in 2021. Last week’s earnings and economic growth figures continue to be digested by the market, with the muted reaction to some earnings ‘beats’ something to consider further. Overall, vaccine rollouts are gathering pace (no more so than here in Ireland) and restrictions are being eased. The amount of cash available to consumers, particularly in the U.S. paints an interesting picture. Some households received a third stimulus cheque in March which caused personal incomes to surge a record 21.1% during the month. Even with double digit rise in consumption, the personal savings rate in the U.S. still stands above 20%. The effects of new U.S. debt issuance which is funding the fiscal measures remains to be seen, and inflation is likely to bite at some point in the future. However, in the short term it appears that the U.S. consumer has more money than they know what to do with. Ultimately, some of this should flow directly into equities, or flow into businesses across the globe, which in turn could help equities.
Finally, today marks a milestone for the Zurich Weekly Investment News – our 1,000th edition. Since the Autumn of 2001 (with the odd break here and there) we have endeavoured to bring the latest market movements and views from Zurich Investments to the Irish Broker community. The publication has changed significantly over the last 20 years; but has consistently tried to share the stories that are affecting the Irish investors on a weekly basis, and we hope to continue to do this long into the future.
Weekly Investment News
U.S. equities reached new highs early in the week, before falling back on Friday as the market digested a flood of earnings releases. There was a wider degree of sector divergence evident, with Google and Facebook helping Communications stocks higher, whilst Healthcare was hit by declines in some drug makers. More than 60% of the companies in the S&P 500 having reported their Q1 figures so far, a third of them last week. Overall, the current earnings season reflects the strong economic rebound in the U.S. with a very high beat-miss-ratio of 87% and an average earnings surprise of more than 20%. Nevertheless, despite the outstanding quarter, the market reaction was relatively muted. In terms of U.S. data, the latest GDP reading shows an annualised gain of 6.4% in the first quarter. As highlighted previously, some data points continue to be skewed by the variance experienced in 2020.
The first estimate for 2021 Q1 GDP in the Eurozone showed that the region experienced a double-dip recession. GDP declined by -0.6% QoQ in Q1, after declining by -0.7% QoQ in Q4 2020. This followed the sharp contraction in the economy in H1 2020. Overall, investors appeared unfazed by the GDP numbers, preferring to focus on forward-looking business surveys and improving vaccination roll-out news, which are pointing to a very sharp rebound in the economy over the next few months and quarters, especially as lockdown restrictions are eased. Indeed, last week, the EC economic sentiment indicator for May jumped to its highest level since 2018. However, the poor performance in GDP terms of the currency bloc’s largest economy, Germany (-1.7% QoQ), is a point to note.
In the U.S., over half of adults have now received at least one vaccine dose, with major economic centres such as New York City and Chicago announcing an easing of restrictions last week. However, the effects of the COVID pandemic are still being felt severely across the globe, with aid beginning to flow to India, as world’s most populous democracy struggles with record breaking daily case numbers.