Stocks Breakout To New All-Time Highs. "We Love You 4,000!"

An excerpt from our Weekly Market Update dated 04/04/2021.

The S&P 500 gained 1.14% this week with Thursday's close at 4,019.87.

Thursday's close is a new all-time high daily and weekly close for the index. The S&P 500 traded unchanged for most of the week. Thursday's 1.18% gain was responsible for the entire weekly advance. Nonetheless, it did leave us yelling "touchdown!" in our office. It was a "Good Friday" indeed.

The big story this week was not only the S&P 500 finally eclipsing the 4,000 level, but also the mountain of outstanding economic data that was revealed.

There's often an "aha!" moment in the world of stocks, or a time where the price action we've seen over the trailing time period becomes sensible, and this week provided numerous "ahas!" to justify why the S&P 500 has gained nearly 30% since November of 2020.

On Tuesday we saw consumer confidence blow past estimates and rise to its highest level since the pandemic began (click here).

On Wednesday we saw Chicago PMI blow past estimates to reach its highest reading since the summer of 2018 (click here).

On Thursday we saw ISM Manufacturing Index blow past estimates to reach its highest level in 37 years (click here)!

And on Friday we saw a blowout jobs report with the economy adding 916,000 jobs in March, nearly 300,000 more than consensus economist forecasts (click here).

For months we've been writing about market participants pricing in their expectations for a future economic bonanza via roaring stock prices. The economic data is meeting those expectations, which is probably why the month of March's downturn didn't materialize into a "correction". And not to be outdone, President Biden set the stage for a $2 trillion infrastructure plan over the coming months (click here).

So the economy is revving its engine and there's evidence that suggests there's still another gear left in front of us.

The Economic Cycle Research Institute's Weekly Leading Index (an index designed to provide insight into where the economy is headed) set a new all-time high on Friday and sports a year-over-year price thrust the likes of which we've only seen one other time in the index's history - 2009/2010. That's good company.

Internally, the technology sector got back to its winning ways this week. The S&P 500 Technology sector (SPT) gained 2.12%. Naturally, the traditional market cap weighted S&P 500 outpaced its equal weight S&P 500 counterpart. SPT still accounts for roughly 30% of the S&P 500, so it's imperative this sector continues to find its way to the north.

Monday's price action in SPT will be fascinating to watch and rather pivotal. SPT closed Friday right at confluence of "resistance" (red shaded region on the chart below), and there's a gift and a curse to stellar economic data in the present. That curse is higher interest rates across the curve and their effect on SPT. Given Friday's stellar jobs report, we'll get to see this battle unfold early next week.

For the week ahead, it's a fairly pivotal trading week for the S&P 500. On one hand, prices just scored a "touchdown", they're at all-time highs, and there are no known levels of "resistance" left on the chart. Strength should beget strength here and we'd like to see the S&P 500 sprint toward the ~4,100 region.

On the other hand, after scoring a "touchdown" you kick the ball back to the other team. Additionally, when things are this good in the present, participants generally have to evaluate just how much better things can get into the future. Remember, market tops are byproducts of those few time periods when the future can't possibly be better than the present in the eyes of participants. We don't believe we're there at the moment, not with the possibility of an "economic bonanza" still on deck, but it will be interesting to see if there's no upside follow-through on Monday. The narrative will shift to how good news is bad news given higher interest rates and concerns over the need for further monetary and fiscal policy.

Happy Sunday!

Steve & Rick

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