Wall Street hits double-digit return
- The S&P 500 is now up 11% so-far this year, and global equities are not far behind, up over 9%.
- Sectors in the weekly driving-seat were utilities (as bond yields fell) and materials (commodities rose).
- If sustained this would be a rare third straight year of double-digit S&P 500 returns. We have only seen this twice before since the 1970’s: the 5-year bull run into the 2000 tech bubble, and between 2012–14.
- With P/E valuations already high at 22x, versus a 10-year average 16x, the earnings outlook needs to keep improving to support this performance.
A strong start from crucial Q1 earnings
- The biggest US bank JP Morgan unofficially kicked off the Q1 global earnings season last week.
- US Financials, from Citi to Bank of America, saw strong results as capital markets and lower loan-loss provisions offset weak loan growth. 16% of S&P 500 to report this week, including NFLX, INTC, JNJ, KO. French luxury goods heavyweight LVMH became Europe’s largest stock, soaring after strong results.
- Consensus now forecasting 31% earnings growth from US versus Q1 last year, and 56% from Europe.
- Stronger-than-expected earnings and management’s post-COVID growth plans are the catalysts to watch.
As important is what we did not talk about
- Despite strong US growth and inflation data last week, 10-year bond yields actually fell. This boosted tech equities, and showed investors already priced-in much with the over 60bps yield surge seen this year.
- March US inflation rose 2.6% year-over-year, starting a sharp but transitory pick up, driven by higher oil prices, supply bottlenecks, and the better economy.
- Retail sales soared 10% vs February, with US$1,400 stimulus cheques and the re-opening economy.
Bitcoin highs as Coinbase now equity benchmark
- Coinbase’ (COIN) crypto exchange listing was an important further step in institutionalisation of crypto.
- It’s US$65bn market capitalisation is over 10x the largest existing listed crypto miners and exchanges, making it an equity benchmark for the segment.
- Helped drive new all-time highs for Bitcoin ($63,000), alt. coins LINK and UNI, and Ethereum hit $2,500 with Berlin hard fork, and tighter supply outlook.
Commodities rise 2nd only to crypto this year
- Commodities rebounded as growth views rose (with OPEC upping its oil demand outlook last week) and the USD weakened (boosting USD denominated commodities). The GSCI index is up 19% this year.
- Brent oil rose to US$66/bbl, even with constraints on: 1) supply, as OPEC spare capacity c9% of market; and 2) demand, with climate policies set to bite, and many investors increasingly averse for ESG reasons.
- Industrial metals (copper, nickel, aluminium) may be better placed medium term, with both a tighter supply situation, and rising ‘green transition’ demand.
The week ahead: The acronym test
- ECB meeting (Thursday) to keep rates on hold as region starts to recover from ‘double-dip’ recession.
- 50th annual ‘Earth Day’ (Thursday) to highlight ESG (Environmental, Social, Governance) issue adoption.
- Purchasing managers index (PMI) lead indicators from US, Europe, Japan (Friday) likely still strong.
Written by a team of experienced financial analysts at eToro.
This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation. Past performance is not an indication of future results.