U.S. Stocks Rallied on Friday, Driving the S&P to a Near-Record Closing High

By | April 26, 2021

Welcome to FTR’s “Monday Morning Coffee “ blog. The following article is designed to keep busy executives up to date with the latest economic data releases. Released every Monday, this blog promises to keep our clientele updated with the latest weekly economic news and developments, highlighting its impact on the transportation, freight, and equipment markets. Hopefully, this will be an informative addition to the fine body of work associated with FTR.

Overview

Asian shares rose on Friday after the European Central Bank left policy unchanged. The markets initially rebounded but gains were capped as investors considered the impact of a possible U.SS. capital gains tax hike. The ECB’s decision to keep copious stimulus flowing despite its prediction of a strong rebound in the euro zone economy from mid-year as COVID infections are brought under control. Stock market sentiment did take a hit after a proposal by the U.S. President Joe Biden to lift the capital gains tax to near 40% for wealthy individuals, almost double the current rate, In Asia, MCSI’s broadest gauge of Asia-Pacific shares outside of Japan rose 0.1%.

U.S. stocks rallied on Friday, driving the S&P to a near-record closing high, as new home sales showed a booming economy. The bounce-back followed a sell-off on Thursday after reports suggested that U.S. President Joe Biden planned to almost double the capital gains tax that spooked investors. The Dow Jones Industrial Average rose 0.67% on Friday to 34,043.49, the S&P 500 gained 1.09% to 4,180.17 and the Nasdaq added 1.44% to 14,0`6.81. For the week, the S&P fell 0.13%, the Dow lost 0.46%, and the Nasdaq 0.25%. Earning takes center stage this week when 40% of the S&P’s market cap report comes out between Tuesday and Thursday.

Economic data was light last week, with existing home sales falling and new home sales surging. Tight supply is a major driver of sales and will boost activity in the coming months. Recent economic data has been robust, in part a rebound from February’s winter woes and a strong outcome from the stimulus and the brighter public health sector. Data from the HIS Markit U.S. manufacturing PMI increased to 60.6 in the first half of the month, the highest reading since May 2007. Next week we get a look at pending home sales, advance trade in goods, and personal income and outlays.

Latest Data

The U.S. Economy:

The Chicago Fed National Index rebounded strongly to 1.71 in March, following a -1.20 reading in February. Seventy of the 85 individual indicators made positive contributions to the index in March. All four broad categories used to construct the index made positive contributions to the index. Production-related indicators added 0.63 to the CFNAI in March, up from -1.04 in February. The personal consumption and housing category contributed 0.63 to the index in March, up from -0.21 in March. The 3-month moving average increased 0.54 in March from 0.07 in February. Although part of March’s improvement in the index was a rebound from weather-impacted February, the index reflects a positive and growing economy.

Existing home sales fell 3.7% in March to 6.01 million units annualized, dropping back to levels reached last August. Single-family sales declined 4.3% over the month, although condo/do-op sales did rise 1.4%. Sales remained up 12.3% from March last year. Sales are falling due to the uptick in mortgage rates and the fact that supply of existing homes are tight. The inventory-to-sales ratio stood at 2.1 months at the end of March, well short of the six-month supply, economists say is needed for a balanced market. In March 2020, the I/S ratio stood at 4.4 months. Mortgage rates ticked up in March but have retreated for the last three weeks.

Payback from severe winter storms pumped up new home sales in March. New home sales surged 20.7% to a cyclical high of 1.02 million annualized units. Furthermore, February’s numbers were revised from 775,000 to 846,000. New home sales rose in every region except the West. The total inventory of new single-family homes rose 3.4% to 900,000 but is down 31.3% from March 2020. The month’s supply decreased to 3.6 from 4.4. The median sales price of a new single-family home was $330,800, the third decline in a row but up 0.8 from a year earlier. Mortgage rates did rise in March but have backtracked slightly in recent weeks. A sustained rise would cool sales a little. Housing will be a plus for the economy for the remainder of the year.

Important Data Releases This Week

The March advance trade in goods report will be released on Tuesday, April 28 at 8:30 AM. Trade volumes are improving but at a slow pace as congestion at the nation’s ports is slowing activity. The U.S. economic strength stans in contrast to much of the world and favors imports. Exports will catch up more slowly. The goods deficit is likely to widen for March.

The March pending home sales report will be released on Wednesday, April 29 at 8:30 AM. Housing is giving a few mixed signals as a rebound from February’s weather was partly offset by rising mortgage rates. The pending home sales index rose 2.4% in February but will be unchanged in March.

The March personal income and outlays report will be released on Thursday, April 30 at 8:30 AM. Both personal income and spending likely surged in March as stimulus checks started flowing and consumers spent at a robust pace. The outlook for consumption is good but will slow towards trend as the stimulus fades.

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About Steve Graham

Steve is one of the premier analysts in the transportation equipment industry. On a monthly basis Steve tracks and analyzes in detail the trailer and heavy-duty truck industry. Aside from following these two sectors he is also instrumental in helping our customers analyze the economy and its impact on transportation and transportation equipment.

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