Published April 2, 2021
This week’s market action reminds us that April is often a favorable month for investors, particularly for tech/consumer stocks. This week, those stocks look to have begun a rebound from their March rest period. Over the past 15 years, the Nasdaq 100 (QQQ) has posted a gain 80% of the time in April, making it the second most reliably strong month for this index.
The folks at DIM offer the following fundamental information supporting a positive market. “The Conference Board’s Consumer Confidence Index jumped to 109.7 in March, up from a downwardly revised 90.4 in February. Consumer confidence is at a 52-week high. In aggregate, consumers’ spirits appear to be recovering from Covid. Roughly 100 million Americans are receiving stimulus checks of up to $1,400 right about now as part of the $1.9 trillion coronavirus relief plan. When you mix stimulus checks, economic reopening and rising consumer confidence, you get accelerated consumer spending.
Even before the stimulus checks were sent out, consumer spending began to accelerate in the first half of March. Spending now sits just a breath below pre-Covid levels.
Since the April 2020 lockdowns, consumer spending behavior has closely tracked the cadence of fiscal support programs. The new round of stimulus checks arriving now is our third round of direct-to-consumer stimulus from the Federal government. The chart below implies the recent uptick in consumer spending (in blue) should be amplified by this third round of stimulus checks (shown in red).
As a result, the economics research group at Goldman Sachs is now forecasting a 9% annualized GDP growth rate for the first half of 2021. Their above consensus view of overall economic growth is being primarily driven by the acceleration in consumer spending.
Consumer spending on retail and service industries represents 70% of U.S. GDP. Periods of robust economic growth have a high positive correlation with periods of stock market appreciation.”
This week’s performance of the influential semiconductor index bears all of this out, suggesting another strong April might be upon us. (Note this week’s breakout on the right side of the chart below.)
A dip in bank stocks kept markets in check Monday as the unwinding of a large investment fund spread concern throughout the banking sector. The Nasdaq continued its interest-rate sensitivity, slipping -0.6% as rates ticked higher. A similar story Tuesday with a small -0.3% dip while large-cap FANG stocks showed weakness. Investors wrestled with the implications of President Biden’s infrastructure proposal as well. That proposal was launched Wednesday. It would seem to support many of the industrial companies that have done well so far this year. However, Wednesday’s market flipped that script with tech/consumer stocks, laggards throughout the first quarter, shooting higher by +1.5%, well ahead of the broader market. Thursday saw an acceleration of that shift back into Nasdaq stocks. The tech/consumer-heavy index posted another +1.8% gain. As Wednesday and Thursday ended the first quarter and began the second, we will see if the +3% rise in the Nasdaq over the two days was due to some rebalancing, or the start of another move higher. Thursday also saw the S&P 500 close above the 4000 mark for the first time. Markets were closed Friday in observance of Good Friday.
For the holiday-shortened week, the S&P 500 (SPY) gained +1.17%. The Nasdaq 100 (QQQ), after five weeks of sluggish trading, showed renewed strength in rising +2.71%. The smallcap Russell 2000 (IWM) held on for a +1.42% weekly tally.
Warm wishes and until next week.