The S&P 500 was basically unchanged last week, rising 0.02% with Friday's close at 4,181.17.
The index's last three weekly closes are 4,185.47, 4,180.17 and 4,181.17, so we've been sprinting in place the last two weeks. The S&P 500 did manage to trade up to a new all-time high at 4,218.78 on Thursday, but price didn't stay there for long. This echoes what we've been discussing in each of our last two Updates, the idea that further upward extension for the S&P 500 isn't going to prove durable.
The price action this week was a perfect illustration of the great old phrase "sometimes what's obvious is obviously wrong". This week was jam-packed with market-moving catalysts including earnings from the top six components of the S&P 500, a Jerome Powell press conference and a sprinkle of economic data, and the obvious expectation was for volatility. Instead, the S&P 500 produced its narrowest trading week of 2021...go figure. Forecasting the market is forever humbling.
So we turn the page to May wondering if a two-week trading range is enough to refresh the S&P 500's advance, or if the index will face a bout of selling pressure in the month that goes by the moniker "sell in May and go away".
As we wrote last week, we continue to be of the opinion that it's healthiest for the S&P 500 to trade down -3% or so from Friday's close first, before trading up 3% from Friday's close.
Reviewing this week's market-moving catalysts, the top six components of the S&P 500 went 3-3 this week in terms of price action (i.e., three winners and three losers). The losers were Apple, Microsoft and Tesla, all of which beat on earnings only to see major reversals throughout the follow on trading. Facebook, Google, and Amazon all moved higher on the week, with Facebook leading the charge by gaining 7.95%.
On a fundamental basis, the revenue growth figures the top six reported were absolutely staggering. Year-over-year revenue growth recorded at:
(source: Charlie Bilello)
There is an element of this being "as good as it gets" for these companies, meaning these same figures into the future can't possibly be as strong given the "timing luck" associated with a year-over-year comparable from the second quarter of 2020 (i.e. peak COVID nothingness) through first quarter 2021. And we don't think we'll be looking at all-time high personal incomes one year from now either (click here).
We heard from Federal Reserve Chairman Jerome Powell on Wednesday and he was as accommodative as ever (click here). Perhaps this provided a boost to the "re-opening trade", which was the big winner this week.
The "re-opening trade" shines brightest when the energy and financial sectors lead the charge, which at least appears to be driven by rises in interest rates (i.e. falling bond prices). The yield curve (as measured by 10s less 2s) steepened this week by seven basis points, or 4.93%, ending its five-week losing streak. Naturally, the energy and financial sectors were the top two performing sectors this week, rising by 3.58% and 2.38% respectively.
By contrast, rising interest rates appear to operate as a headwind for the technology sector. Technology has been one of the top performing sectors over the last five weeks while the yield curve was flattening, so it's no surprise that the technology sector was the biggest loser this week, falling -2.12%.
S&P 500 Primary Trend - Up
The S&P 500 finished the month of April on Friday, closing the month higher by 5.24% and finishing at a new all-time high.
Our work continues to label the primary trend as up, or "bullish". During uptrends, long-term investors generally benefit from keeping it simple and straightforward, with an equity overweight across their portfolio asset allocation and sitting on their hands. It's not until the primary trend can be labeled as down, or "bearish" that long-term investors can potentially benefit from enhanced sophistication. We're clearly not there yet.
So the S&P 500 has now gained a whopping 9.71% the last two months, and April recorded as a calendar month that gains 5% or more and closes at a new all-time high. Lately, this has spelled trouble over the very next trading month.
When thinking beyond the short term, the S&P 500 is off to a fantastic start through the first four months of the year.
If the calendar year is analogous to a boxing match between the bulls and the bears, then the bulls are absolutely hammering the bears through the first four rounds. They're landing the crisper, cleaner punches. This has generally been a good sign for the S&P 500's returns the remainder of the calendar year.
If we quantify the bulls' fast start by identifying all calendar years where the S&P 500 was higher by 10% or more through the month of April, we're left with 17 prior calendar years (2021 is number 18). The S&P 500's returns the remainder of the year are then 15-2 for average gains of 7.41% (i.e. we've closed higher 15 times and lower 2 times). The lone losers were 1987's crash and a mild -1.79% decline May through December of 1971.
As always, the past is not predictive, especially when we live in unprecedented times. The game will never be that easy.
But while the past can't tell us the future for the S&P 500, it can be used to help long-term investors keep their "fear" in check. For example, the table above proves that the S&P 500's fast start to the year is not a reason to invest more conservatively for the remainder of the year.
Right now, there's a general degree of "fear" across most mass affluent investors between the ages of 60-80.
This subset of investors has every right to be fearful; they've been burned so badly a handful of times over their investing careers that they understand the risks of investing.
The same can't be said for the younger subset of investors (specifically Gen X and millennials), and we think that's why there is a complete bifurcation in sentiment. The younger subset sports incredible optimism and speculation while the mass affluent boomer crowd believes this "can't continue". We remember the overall "greed" that filled the air in 2007 and the landscape is nothing like that here in 2021.
TRAN Makes It To 13, Bitcoin's Back, San Diego Housing Market Rips
We're a bit sick and tired of writing about the Dow Jones Transportation Index (TRAN), but the index extended its winning streak to 13 this week. The TRAN gained 1.41% with Friday's all-time high weekly close at 15,347. Prices don't move linearly? The TRAN says "hold my beer". What a run.
Bitcoin's back to booming! Sellers did not win the battle at the 100-day simple moving average, eager buyers did.
Home prices have been absolutely exploding across the country given a supply-demand imbalance, plentiful liquidity, and friendly financing rates (click here). We're happy to report that San Diego home prices are higher by 16.96% over the trailing 12 months through February of 2021 (click here). This also feels like it "can't continue", but it felt that way last summer and yet here we are.
Happy Sunday!Steve & Rick
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