Markets Push to Records on Improving Economic Data

Weekly Market Recap

• Stocks continued their strong run last week, with multiple indexes hitting all-time highs. We saw global markets (represented by the MSCI All Country World Index) up 2.0% and domestic stocks (represented by the S&P 500 Index) up 2.8%. Both U.S. small companies and emerging markets were slightly down for the week. The technology sector had a good week, posting a 4.7% return.
• Recently released economic data has been mostly positive. As mentioned in last week’s commentary, the March payrolls report indicated sizable labor market gains. Additionally, the Institute of Supply Management released a gauge of service sector activity, which ended up being at its highest level ever. Both the service sector activity and factory activity reported high levels.
• Corporate earnings expectations for the first quarter continue to rise. Most recently, earnings for companies in the S&P 500 are forecasted to rise 24% for the first quarter.
• The one concern in data was the report of higher prices for production inputs. The Bureau of Labor Statistics announced that producer prices rose 1% in March. Supply chains are being watched closely as they’re feeling pressures of input shortages. A good example comes from the auto industry, which has had production shutdowns due to shortages in semiconductors.
• Fed Chair Jerome Powell continues to reiterate their commitment to keeping short term rates low. Investors need to keep an eye out here, as deviations from this expectation could cause some short-term volatility. The expectation is still for the Fed to hold rates low into 2022, and possibly 2023. Don’t be surprised if higher inflation readings at points this year spark concerns that a rate hike could be accelerated.
• I think its times like this that investors should be reminded to review their portfolios and consider rebalancing. Global equity markets continue to drive returns on the expectations of a strong economic recovery this year. Whenever markets are particularly strong, investors should use that as an opportunity to capture gains and rebalance portfolios. This can ensure that your portfolio remains in line from a risk standpoint and allow you to take advantage of other opportunities. At Diversified, rebalancing is something that is systematically built into our investment process.
• I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.

Regards,

Mike Horwath, CFA

Chief Investment Officer