This post was originally published on this site
U.S. stocks on Monday kicked off the week and month with gains as evidence mounted that American corporations were rebounding from the deadly COVID pandemic, portending a strong bounce for the overall economy in the second half of 2021.
However, fears of a sustained rise in inflation and concerns that much of the economy’s rebound has been priced into equity valuations has created some unease among investors and has the potential to knock stocks around.
How are stock benchmarks performing?
-
The Dow Jones Industrial Average
DJIA,
+0.77%
advanced 261 points, or 0.8%, to 34,136. -
S&P 500
SPX,
+0.49%
were up 21 points, or 0.5%, to 4,202. -
The Nasdaq Composite
COMP,
+0.21%
rose 26 points, or 0.2%, to 13,989.
On Friday, the Dow posted a weekly decline of 0.5%, but notched a 2.4% gain in April, while the S&P 500 was virtually unchanged, but gained 5.6% last month. The Nasdaq Composite Index registered a weekly loss of 0.4% but jumped 7% in April.
Read: Charlie Munger ‘hates’ bitcoin’s rise: ‘disgusting and contrary to interests of civilization’
What’s driving the market?
Investors have been keenly focused on the recovery of U.S. corporations in the aftermath of the COVID pandemic, with some of the biggest companies affirming that a genuine rebound is under way.
That rebound was at least partially on display in light of the performance of conglomerate Berkshire Hathaway
BRK.A,
BRK.B,
which reported a 20% jump in its operating profit, rising to $7.02 billion from $5.87 billion in the year prior.
Berkshire, helmed by billionaire investor Warren Buffett, over the weekend also reported first-quarter net income of $11.7 billion, compared with a loss of $49.7 billion, in the year-earlier period.
See: Berkshire’s Munger: Stock buybacks for benefit of shareholders a ‘deeply moral’ act
Performances like that of Berkshire’s has helped to bolster confidence in equities at the start of the month that has traditionally been associated with a comparatively weak six-month seasonal stretch of trading starting in May. Of the S&P 500 companies that have reported results so far, 86% have beaten earnings expectations.
“We look for a positive start of trading in May as investors are likely to adopt to sideways movements, while staying clear of ‘Selling And Going Away In May’,” wrote Peter Cardillo, chief market economist at Spartan Capital Securities.
Investors also saw positive developments from Europe, bolstering confidence in the eurozone recovery. The European Commission on Monday proposed allowing entry by non-essential travelers who have been fully vaccinated to the region.
Looking ahead, investors are watching for further commentary from Federal Reserve Chairman Jerome Powell, who is scheduled to speak at 2:20 p.m. Eastern Time at the Just Economy conference, which is being held virtually.
Anxieties surrounding the Fed’s response to a stronger economy also has investors on edge after Dallas Fed President Robert Kaplan said Friday that he believes it is time to discuss tapering the central bank’s asset purchases.
Bernard Baumohl, chief global economist at The Economic Outlook Group, recently wrote that the Fed will have to walk a fine line as it eventually dials up interest rates and tapers an asset-purchasing program that has helped to support markets during the height of the pandemic-inspired stock selling in March.
“So what should the Fed do at this stage? Frankly, nothing major at this time. But as the economy regains its footing, Powell will face one truly vexing issue later this year: How do you reduce asset purchases without causing major turbulence in the bond market?” wrote Baumohl.
On the economic data front, market participants will sift through manufacturing reports in April, headlined by the manufacturing index from the Institute for Supply Management due at 10 a.m. The Markit’s manufacturing index for the U.S. came in at 60.5 for April. Any number above 50 marks an increase in factory activity.
Last week, a weaker tone of manufacturing and services activity in China and recession in Europe were blamed for a slide in stocks on Friday.
Which companies are in focus?
-
Shares of Berkshire’s Class B shares
BRK.B,
+1.82%
were up 1.6% after Buffett said Greg Abel, the conglomerate’s vice chairman in charge of non-insurance operations, would be his successor as CEO if Buffett left the job. -
Tesla Inc. shares
TSLA,
-1.77%
were trading lower by 2% after a German trade magazine reported that Tesla’s gigafactory in Berlin is likely to be delayed by six months. -
Shares of Verizon Communications Inc.
VZ,
+0.47%
inched higher after it announced it would sell Verizon Media, including Yahoo and AOL brands, for $5 billion to private equity firm Apollo Global. -
Domino’s Pizza Inc.
DPZ,
+1.49%
said in a Monday filing that it has entered into a $1 billion accelerated share repurchase agreement with Barclays. -
Shares of GameStop Corp.
GME,
-0.91%
rose 0.3%, after the videogame and consumer electronics retailer announced it has effectively eliminated its long-term debt. -
Estée Lauder Companies
EL,
-5.67%
shares slid 4.4%, after the cosmetics and beauty company posted stronger-than-expected profit for its fiscal third quarter but sales that missed estimates.
How are other assets faring?
-
In Asia, Hong Kong’s Hang Seng index
HSI,
-1.28%
fell 1.3%. Bourses in Shanghai and Tokyo were closed. -
The 10-year Treasury note yield
TMUBMUSD10Y,
1.602%
was virtually flat at 1.627%. -
The greenback was on the backfoot, trading down 0.2% based on the ICE U.S. Dollar Index.
DXY,
-0.28% -
Prices for gold futures
GC00,
+1.41%
were up 0.9% to 1,784,30 an ounce on Comex. U.S. crude futures
CL.1,
+1.05%
were flat at $63.59 a barrel.
