Markets are five days away from their first summer (unofficial) weekend and volumes (lowest so far this year) certainly felt like it.  But instead of traders doing nothing, investors kept with the momentum that started mid last week, namely buying Tech and Semis, which led to Nasdaq/ NDX 100 closing back above their 50 day moving averages. It was not all about Growth though, with just about every sector finishing green (Utilities and Pharma fell into close to finish with slight losses).

The icebreaker is done and now it seems the Fed heads can talk about the talk.  While allowing some differing opinions, they generally sway as a group, and today’s speakers (Harker, Bostic and Kaplan) all took opportunities to mention tapering.  For markets that had started in a positive mood (S&P up 70bps at its high), those comments were enough to reduce any risk appetite, especially heading into a weekend. 

I always pictured the “talk” as something that is cringe worthy, and very uncomfortable for everyone.  It’s tough to have, and we all know it’s coming.  But I suppose just having a conversation about the conversation seems a lot less intimidating, and therefore easier to stomach.  Economic data was mixed to start, with the Philadelphia Fed showing what everyone knows.

It’s not often we start the View off with commodities, but after the largest gas/ diesel pipeline on the US East Coast was shut down due to a cyber ransom attack, investors were in no mood to fight the massive momentum surge in futures prices.  Copper, Oil, Lumber all started the morning moving higher (once again) as supply concerns continue to percolate within the inflation story. 

After 13 months of working from home, I made my triumphant return to the office.  Things have changed obviously; fewer people in the office still, fewer people on 5th Ave, fewer cars, and unfortunately, fewer stores still in business.  But I am happy to be back, and trying to get some resemblance of working normalcy.  Markets have been toying with their own return to balance (new highs forever/ low rates forever??), but this will take far longer. 

We’re switching the View up a bit today, moving it back to post the US close (we hope you’ve at least noticed THAT change by now) and a format more similar to the original version. Is it cool my co-authors have made me initiate the new/old View on my birthday? I have my thoughts on the matter but will leave the ultimate judgment to you. Enough of that – after a torrid week of earnings, the seasonally weak month of May now upon us. If you base your portfolio decisions solely on rhymes, it’s clear what to do next. But even that time worn adage doesn’t necessarily hold true anymore (see below). Warren Buffett and Charlie Munger gave us some delicious soundbites while reenacting Grumpy Old Men (can sympathize). There’s still plenty of fire from these two, nobody was spared. Crypto, SPACS, Robinhood – each of them caught a fresh one from the Street legends. Buffett also touched on the “buying frenzy” taking place in the market and naturally pointed to creeping inflation. It’s impossible to argue that point; you could look in any direction and find an ‘asset’ that’s ripping.

April Showers Bring?… Month-end risk off mentality has introduced some sogginess into the market today, but with stocks arguably in full bloom already near ATHs, it’s hard to say what lies ahead. Yes it’s been a packed earnings / Fed week so there’s a lot to digest, but it feels like all the action has only really served to confirm earlier suspicions and left unanswered the question “what next?” Earnings overall have been pretty good and companies are reflecting optimism about the recovery. Check. Many of those companies are also experiencing input price pressures and supply chain disruption. Check. Big Tech giants are still basically printing money and leaving cons estimate in the dust. Check. And, most important (and predictable), the Fed is sticking to its script on patient policy and transitory inflation. Double check. We’re seeing the market struggle with whether or not “good” corporate updates are “good enough” to extend the already stretched valuations that have been born out of high expectations. The big question mark was and still is the Fed’s stare down with oncoming inflation. Just when they blink is a matter of time given the pace of recovery, but until then stocks may be left struggling for answers…

Great Expectations – It’s always tough when markets start the day with healthy gains, especially at new ATHs.  Either they can continue higher based on the pre-open reasons for the gains, or expectations catch up to reality, and that opening level fades.  Today’s action has been that second point.  Earnings from Apple (u/c) and Facebook (+6.2%) were fantastic, and the latest Q1 GDP reading of 6.4% (driven by 10.7% personal consumption annualized) was also strong.  But stocks look to the future, and the debate of whether this level of earnings/ GDP strength can be maintained is triggering some profit taking (although the S&P is still +30bps currently). Looking ahead, traders will get a healthy does of eco data tomorrow; Personal Income and Spending are expected to show monthly gains, while the Fed’s preferred inflation PCE data will be announced.  Some other notables:

Business as Usual – After encountering some resistance at the end of the day Friday following their standard ramp-up into the bell, equities are back to doing what they do ie going higher, albeit in tempered fashion to start what promises to be a busy week. It being a Monday with plenty set to come in the days to come have kept moves and volumes largely in check but banks and semis are the strongest of the lot. Reopening sentiment was bolstered over the weekend after a report that Europe would allow vaccinated Americans to visit (be careful what you wish for!) Cap goods company OTIS (+6.2%) had the stage largely to itself this morning and delivered but that aside, today has been more of the same. Even with concern increasing over an increase in COVID cases in developing markets, optimism over economic growth is winning the day. After bouncing off its 50dma, 10-year yields were in the process of making a move through 1.60 but have since relented after some soft economic data – isn’t that how its usually supposed to work? Even so, banks remain in favor while semis try to recapture their mojos ahead of some high-profile earnings this week, broker upgrades providing a tailwind today. That said, chip shortages remain a concern, with Volkswagen highlighting that point over the weekend. Speaking of earnings, we get Tesla after the close today. Elon revealed he’d soon be hosting Saturday Night Live and given his past public appearances, it’s got to make some investors a bit jittery.

Two Steps Forward, One Step Back – Maybe taxes aren’t so bad after all? Well, of course they are, nobody WANTS to pay more. But if you didn’t know hikes were coming post November 3rd AND after printing trillions to stimulate the economy, then you haven’t paying attention. Sentiment still feels optimistic, bordering on complacent, and with valuations so stretched, it can leave the market vulnerable and fragile, hence those little shakeouts. But yesterday’s news feels a lot older than that and the main indices are on precipice of making new ATHs. And why? Because earnings have on balance been great, economic data remains red hot and those tax rates that flashed on the TV yesterday simply aren’t going to happen. The lone sector in the red is Household Goods and you can point your finger squarely at Kimberly-Clark as the hoarding of toilet paper dissipates. Bank/autos names are at the top of the gainers but growth doing better broadly speaking. Semis would be doing even better were it not for Intel (shame on you), where increased costs and some weakness in their data centers. And whereas bonds didn’t gain yesterday during equities sell-off yesterday, they are in fact lower on stocks resurgence today. Breadth remains good for the S&P but there has been some leakage from the Nasdaq and Russell 2k – you must keep your eye on this.