S&P 500 Ends Week at All-Time High Despite Mid-Week Turmoil
The S&P 500 closed at an ATH of 4,232.60 which was up from 4,181.17 last Friday. The big news on Friday was a pretty massive miss on non-farm payrolls. It came it significantly below expectations but markets shrugged it off and understandably so given that it takes a lot of pressure off the Fed to begin ‘thinking about thinking about’ Tapering. Jay Powell’s life was probably made significantly easier by this morning’s miss, particularly after Janet Yellen talked out of school on rates recently.
That being said, we think this number is usually prone to noise in normal circumstances and even more so in the anomalous times we live in. Normal markets are like the blues; steady, relatively repeatable, and predictable progressions. If you’re a musician you know that you can jam with anyone as long as you both know the 12 bar blues and your scales. This is not the case with jazz. In environments like this (blues-like or markets dominated by endogenous cycles) Wall Street that has a special advantage in a more normal environment as computing power and math are particularly valuable in these tamer cycles in making sense of data.
The markets we’re living in today in the hopefully soon-to-be post-COVID-19 reality are much more like jazz. Staggered, changing tempos and things just happening when you might not expect it. The smooth consonance and steady back-beat of the blues stands in stark contrast to the sometimes dissonance or some might even say shrillness that can instantly grab your attention in an unexpected
and pleasant way as the more erratic and random character of Jazz tunes are prone to rapid, sometimes uneven changes. We see this as an imperfect but useful metaphor in today’s markets. It should come as know surprise that dislocations in the labor market are occurring. Labor dislocations have happened in the wake of plagues since before the Black Death. Similarly, inflation in commodities has regularly occurred. The prices of lumber, steel, and many food items are surging.
Another unique event where the Entertainment Industry and Wall Street are converging this week is the much-anticipated episode of Saturday Night Live which is featuring Tesla and Space-X CEO Elon Musk as the host along with Miley Cyrus as the musical guest and will air on May 8th. The price of some more speculative crypto assets may partially be surging in anticipation that Mr. Musk may give some shout out to the legions of retail investors who idolize him.
The initial ad featured him and Miley Cyrus capitalizing on their somewhat mutually shared image as rebels and iconoclasts. However, as this video demonstrates of Ms. Cyrus, beyond all the hype and image she is an incredibly talented singer. You can take the girl out of Nashville but you can’t take the Nashville out of the girl. We think despite the hype of this Episode it will likely be two very talented people putting on an entertaining episode. We certainly don’t see it as anything more or less.
This earnings season has been incredibly strong, so why have there been such lackluster performance in so many names that shatter expectations? My colleague Tom Lee will answer this delicate question below. Despite some stocks not moving as investors might like, strong earnings are strong earnings. Sell-side analysts are repeatedly upgrading earnings for the S&P 500. 87% of companies outperformed expectations which is significantly above the historical average of 65%. Energy lead in sales outperformance and was the only sector to have double digit surprise in the area.
We held a webinar this week in which Tom Lee and Tom Block discussed how the re-opening of the world’s largest economy should affect stocks and which sectors should benefit most. The replay is available here. We want to thank our family of loyal and inquisitive subscribers for tuning into this event in droves. The whole team is honored by your support.
The re-opening is here. Hilton’s CEO noted that “April bookings for the summer are exceeding 2019 peak levels by 10% in the US.” Folks are beginning to offices and retail properties are filling up again.
This SNL episode is not a shoeshine boy moment but it does suggest Lorne Michaels might also being paying attention to on of our favorite investing themes which is the economic rise of millennials. Like Mr. Michael’s ratings, we are the stock market benefits from this rise and from the looks of it that is already occurring. Stock holdings are now 41% of household levels, the highest level on record. We think this is the beginning of a longer-term bullish trend for equities. Millennials don’t like bonds. They like crypto and stocks and as they inherit trillions of dollars they will increase holdings.
Of 431 companies that have reported so far (88% of the S&P 500), 85% are beating earnings estimates by a median of 16%. On the top line, 77% are beating by an average of 7%.
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