* S&P 500, Dow end at record highs
* Nasdaq up, but closes well off day's high
* All major S&P sectors gain: Energy leads
* Dollar down; gold rises; crude edges higher
* U.S. 10-Year Treasury yield fell to low of 1.4690%, now
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YIELDS YO-YO, YANK NASDAQ OFF THE DAY'S HIGH (1605 EDT/2005
The S&P 500, and the Dow closed at new records
on Friday as weak non-farm payrolls eased rate worries.
Indeed, in the wake of a weaker headline jobs print
, the U.S. 10-Year Treasury yield
plunged to as low as 1.4690%, and Nasdaq 100 futures
jumped in premarket, ultimately leading to the Nasdaq Composite
rallying around 1.4% in early trade.
However, with a subsequent snapback in yields, putting the
10-year in the 1.58% area, and up on the day, the Nasdaq lost
more than a third of its rise. In fact, the Composite ended in
the bottom half of its trading range for the day, down a little
more than 3% from its late-April record intraday high.
With this Nasdaq retreat off the day's high, growth shares
failed to hold gains vs value. As a result, the
IGX/IVX ratio has now fallen 9-straight days for its longest run
of losses since a 12-day streak in September 2017.
Meanwhile, the DJ Transportation Average continued
its record-run of higher-weekly closes (Refinitiv data back to
early 1988), ending up for a 14th straight week.
Here is Friday's closing snapshot:
Q1 PROFITS CONTINUE TO LEAPFROG EXPECTATIONS (1420 EDT/1820
First-quarter earnings for U.S. companies continue to exceed
expectations, with estimated growth now at 50.4% in what is the
largest improvement on record going back to 2002, according to
With this, the current 21Q1 earnings growth rate is the
highest since 2010 Q1.
"Since the start of earnings season, 21Q1 Y/Y earnings have
improved by 26.1 percentage points," Refinitiv analysts said in
a note Friday.
Some 87.2% of earnings reports beat analyst expectations -
which was the highest beat rate on record since 1994.
INVESTORS THINK IT'S OK IF INFLATION RUNS, A BIT (1350
As part of the most recent American Association of
Individual Investors (AAII) sentiment survey, AAII
polled its members for their thoughts on the Federal Reserve’s
willingness to let inflation run moderately above 2% for a
period of time without raising interest rates.
According to AAII, slightly more than a third of respondents
(35%) said that they agree with what the Federal Reserve is
This compares to 24% of respondents who said that they think
this is a bad decision and that they think that the Fed will not
be able to keep a lid on inflation once it starts climbing.
About 11% of respondents said that they are opposed to this
decision because it hurts savers and bondholders. Additionally,
about 11% of respondents stated that they disagree with this
policy because it encourages borrowing and excessive money
Here are a couple of quotes from investors with differing
points of view on the matter:
“I’m alright with this, I suppose I’ll take a ‘wait and see’
approach. These are unprecedented times and I think some
patience is warranted."
“Not a good idea. It encourages too much borrowing on the
part of people who really get hurt when inflation finally
catches up and interest rates have to rise."
PASS THE CAVIAR, AND ADD SOME TO THE PORTFOLIO (1341
On Friday, thoughts begin drifting to Saturday night dinners
and Sunday brunches. As Invesco notes, climbing standards of
living over the past few decades means consumers' food
preferences are changing.
"In developed markets, consumers are directing more of their
food dollars to things that not only taste good, but which are
nutritious and free of harmful additives," Invesco analyst Máire
Lane writes in her note "Better food: An investment trend worth
For investors looking at the food sector, Lane lays out four
categories set for growth.
First, Lane cites reports showing levels of fish consumption
have more than doubled since the 1960s. But consumers who order
sea bass may be paying top dollar for similar looking, but
cheaper fishes like tilapia according to estimations of seafood
To that end, Invesco likes Paris-listed Eurofins Scientific
because of their technology allowing distributors to
test and identify fish samples.
Fish may be gaining market share, but few things have
"global appeal" like burgers. Lane picks out chains with
premium, health-conscious ingredients like Shake Shack,
and meatless burger companies. (Shake Shack shares have dropped
today, however, after reporting quarterly results).
Every good meal needs a good beverage, and lockdowns turned
many on to crafting cocktails at home. Lane notes that "luxury
liquor" is one of the fastest-growing alcoholic beverage
segments, jumping at a 9.2% annual rate over the past five
To play this space, she thinks customers will choose premium
mixers to pair with liquor, and so recommends British beverage
company Fevertree Drinks.
"We believe the trend of consumers directing a larger
portion of their food budget toward higher-quality — and
higher-margin — options is here to stay," Lane concludes.
INVESTORS CROWD THE NEUTRAL CAMP (1235 EDT/1635 GMT)
Neutral sentiment among individual investors over the
short-term direction of the stock market rose to a 9-week high
in the latest American Association of Individual Investors
(AAII) Sentiment Survey. With this, bullish sentiment edged up,
and bearish sentiment dipped.
AAII reported that neutral sentiment, or expectations that
stock prices will stay essentially unchanged over the next six
months, increased 0.8 percentage points to 32.5%. Neutral
sentiment was last higher on March 3, 2021 (34.4%). Neutral
sentiment's historical average is 31.5%.
Bullish sentiment gained 1.7 percentage points to 44.3%.
Bullish sentiment was last lower on March 3, 2021 (40.3%).
Optimism is above its historical average of 38.0% for the 23rd
week out of the past 25 weeks.
Bearish sentiment fell 2.5 percentage points to 23.1%.
Bearish sentiment is below its historical average of 30.5% for
the 13th time this year.
With these changes, the bull-bear spread rose to +21.2 from
+16.9 last week:
S&P BANKS LET OFF A LITTLE STEAM AFTER RECORD (1201 EDT/1601
The S&P 500 Banks index is on track for a ~3.5%
weekly gain, its biggest since mid-March, although it is down
0.5% on the day so far after hitting a record level on Thursday
when it surpassed even the loftiest levels reached in 2007,
ahead of the great financial crisis.
Banks are up ~32% so far in 2021 after a pandemic induced
dip of ~17% in 2020 but Piper Sandler analyst Jeffery Harte
expects to see more gains ahead for the sector.
"The banks have been strong over the last 6-8 months as the
environment has improved. The path from here should be upwards
but probably more slowly," Harte said.
Along with the economic recovery, he sees support coming
from credit quality, which he says has been surprisingly good
throughout the pandemic, and also from the big stash of capital
banks will be able to use for stock buybacks, which could help
to boost the shares.
Of course, it is not all rosy for the sector as loan growth
and interest rates still need to pick up. Shorter maturity rates
such as 2-year and 5-year Treasuries have lagged gains in
longer-dated Treasury yields.
But still, Harte estimated that the sector could see another
10% plus upside but he said:" It's just not going to be
tomorrow, probably months."
THAT ASIDE, MRS. LINCOLN, HOW WAS THE PLAY? A PAYROLLS
DEEP-DIVE (1116 EDT/1516 GMT)
Market participants waiting with baited breath for the
curtain to go up on the Labor Department's monthly employment
report on Friday were rewarded with a mostly disappointing
The economy added 266,000 jobs in April,
undershooting the 978,000 consensus by a mile, and the
unemployment rate unexpectedly rose to 6.1% instead
of dropping to 5.8% as expected.
The shortfall is largely attributable to labor shortages as
cited in recent business surveys such as PMI, with businesses
struggling to find workers to meet booming demand.
"This jobs report was quite the disappointment, suggesting
businesses very well could be having trouble hiring amid the
reopening," says Ryan Detrick, chief market strategist at LPL
Financial. "As poor as today's jobs growth was relative to what
was expected, we still believe the reopening is coming and
future months should make up for this miss."
And those future months have a lot to make up. With today's
report, total U.S. employment remains 8.2 million below the
Lack of workers isn't the only headwind. Spiking demand is
colliding with a supply drought, significantly capping factory
output. With this, manufacturing payrolls decreased by a
But buried in the manure, there's a pony or two.
The unemployment rate's unwelcome rise was at least
partially driven by workers returning to the labor force.
"The labor force increased by 430,000 workers in April, the
largest gain in six months," writes Elise Gould, senior
economist at the Economic Policy Institute. "Likely in response
to improving public health metrics and increased expectations of
job opportunities, more and more workers are actively returning
to the labor force in search of work."
This is evidenced by an uptick in (the still depressed)
labor market participation rate and a decrease in the long-term
unemployed share of the total, as seen in the two charts below:
Additionally, the so-called "real" unemployment rate, which
includes those marginally attached to the labor market and
Americans forced by economic reasons into part-time gigs,
actually shed 0.3 percentage points to 10.4%.
The tight labor pool unexpectedly caused average hourly
wages to increase by 0.7% from March (up 0.3% year-over-year)
and the average workweek grew longer, a sign that employers are
dangling pay increases to convince workers to stay on the job
and asking them to work longer to fill out their schedules and
meet the demand boom.
"We know from endless surveys that labor demand is very
strong, but we also know from both surveys and media-reported
anecdotes that firms are finding it hard to recruit people,"
notes Ian Shepherdson, chief economist at Pantheon
And finally, back to the bad news. The racial/ethnic
unemployment gap widened, with the white jobless rate edging
down to 5.3%, while Black unemployment rose to 9.7%.
"Clearly, these two groups are experiencing a very different
labor market," Gould adds.
The report sparked a Rube Goldberg-style chain reaction,
sending benchmark Treasury yields and the dollar
lower, which in turn boosted the tech-laden Nasdaq
Nevertheless, the Nasdaq is on course for a weekly decline,
while the S&P 500 and the Dow appear set to notch
advances from last Friday's close.
EYE POPPING COMMODITY PRICE GAINS DON'T NECESSARILY LEAD TO
LASTING INFLATION (1008 EDT/1408 GMT)
Nicholas Colas, co-founder of DataTrek Research, is out this
week with some comments on commodity prices and consumer
Colas believes that next week's Producer Price Index data
will get a lot of attention as a measure of "inflation in the
He says that the March 2021 reading of 4.2% for final demand
was the highest print since September 2011's 4.5%. Given the
easy comps from April 2020, DataTrek is expecting to see April
2021 PPI hit +6%.
Colas points out that vs last year, many commodities are up
big including plywood, steel, copper, corn and wheat. However,
he also notes that commodities are notoriously volatile. In
fact, he says these commodities have all seen swings of at least
+/- 40% at some point in the last 20 years.
Given this, Colas addresses whether higher commodity prices
inevitably lead to lasting consumer price inflation. According
to Colas, the relationship has changed somewhat over time. In
the 1970s – 1980s, these measures tracked each other closely.
However, from the 1990s onward, "commodity inflation has had
a weaker effect on consumer inflation. The two are still
correlated, but commodity prices are no longer as dominant an
influence on CPI inflation."
Therefore, DataTrek's bottom line is that U.S. consumer
inflation is not as tied to commodity prices as it once was, as
although the history since 2000 shows the cost of commodities
can certainly edge CPI higher over the short term, the effects
"We expect things will play out the same way in 2021 – 2022
but certainly recognize that there's going to be some
eye-popping commodity inflation in the near term that could
capture market attention."
U.S. STOCK FUTURES MIXED AFTER PAYROLLS MISS (0900 EDT/1300
U.S. equity index futures are mixed in the wake of a worse
than expected April NFP headline number.
April NFP printed at 266k vs a 978k estimate. Average hourly
earnings were hotter than expected:
With this, the U.S. 10-Year Treasury yield fell
to as low as 1.4690%, before bouncing back to around 1.54%.
With the lower yields, Dow futures and crude
weakened, while gold and Nasdaq futures
If this premarket action holds through the day, there may be
potential for the S&P 500 growth/ S&P 500 value
ratio to end its 8-day losing streak.
As for the payrolls report, Peter Cardillo, chief market
economist at Spartan Capital Securities in New York, said “It’s
a disappointing report. The participation rate is stuck in the
mud. The unemployment rate at 6.1% is another disappointment."
Cardillo added that, "It’s being accompanied by higher
wages, which could be a problem."
As for market reaction, Cardillo said, "We’re seeing gold
going through the roof right now. Yields going down and higher
yields have had a negative effect on the Nasdaq. With the
10-year (Treasury yield) going to 1.51%, that’s a hefty drop.
The dollar sinking and people are rethinking the Nasdaq.”
Here is where markets stand ahead of the U.S. open:
(Terence Gabriel, Stephen Culp)
FOR FRIDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)