Stocks Post Weekly Gains Heading into Holiday Weekend

U.S. equities headed into the extended Easter holiday weekend higher, notching weekly gains along the way. Growth stocks, notably Information Technology and Communication Services sectors, led the way in the wake of yesterday's unveiling of President Biden's $2 trillion infrastructure spending plan. The markets remained buoyed by economic and earnings optimism for 2021 as the new quarter began, which seemed to counter the recent spike in Treasury yields and the bounce in the U.S. dollar. On the economic front, the ISM Manufacturing Index jumped to the highest since the early 1980s, while initial jobless claims came in a bit higher than expected before tomorrow's March nonfarm payroll report which will be released even though the markets are closed in observance of Good Friday. In earnings news, Micron Technology topped profit projections and issued stronger-than-expected Q3 guidance. Treasuries were higher, applying downside pressure on yields, and the U.S. dollar was lower. Gold saw a solid gain, and crude oil prices jumped following the decision from OPEC+ to gradually increase output over the coming months. Europe finished mostly higher, while markets in Asia saw widespread gains.

The Dow Jones Industrial Average rose 172 points (0.5%) to 33,153, the S&P 500 Index increased 47 points (1.2%) to 4,020, and the Nasdaq Composite was up 233 points (1.8%) at 13,480. In moderate volume, 877 million shares were traded on the NYSE and 4.5 billion shares changed hands on the Nasdaq. WTI crude oil gained $2.29 to $61.45 per barrel. Elsewhere, the Bloomberg gold spot price was $22.15 higher at $1,729.86 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—moved 0.3% lower to 92.92. Markets were higher for the week, as the DJIA moved 0.2% to the upside, the S&P 500 gained 1.2%, and the Nasdaq Composite jumped 2.6%.

Micron Technology Inc. (MU $92) reported fiscal Q2 earnings-per-share (EPS) of $0.98 ex-items, above the $0.95 FactSet estimate, as revenues grew 30.0% year-over-year (y/y) to $6.2 billion, roughly in line with the Street's forecast. The company said its Q2 EPS were $0.53 including certain extraordinary items such as inventory accounting policy changes as of late and stock-based compensation. MU noted that its results reflect the rapidly improving market conditions, highlighting its position in DRAM and NAND technologies which it said places it in an "excellent position" to capitalize on the secular demand driven by AI and 5G, and to deliver new levels of user experience and innovation across the data center and intelligent edge. MU issued Q3 guidance that topped expectations. Shares were higher.

The markets digested yesterday's details of President Joe Biden's $2 trillion infrastructure spending plan, which also included a proposal to increase taxes that could complicate its passing given the composition of Congress as the Democrats hold a slim majority. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his latest article, Stimulus Payback: 2023, how the amount of fiscal and monetary stimulus has been record-breaking, and it has done a lot to propel the most rapid global economic rebound in history. However, Jeff addresses the question of when do we start to pay for it, and what will the cost be to the economy as easy money starts to become tight? He points out how the good news is that the payback may not come until 2023, making current worries premature, but the bad news is it may be hard to avoid after that.

Meanwhile, the Schwab Center for Financial Research (SCFR), offers our Quarterly Market Outlook: Different Speeds, delivering a few thoughts for investors on how economic growth is picking up and the stock market is trending higher, but in a choppy fashion.

Jobless claims come in higher than expected, March manufacturing activity accelerates

Weekly initial jobless claims (chart) came in at a level of 719,000 for the week ended March 27, above the Bloomberg estimate of 675,000, and compared to the prior week's downwardly revised 658,000 level. The four-week moving average decreased by 10,500 to 719,000, and continuing claims for the week ended March 20 fell by 46,000 to 3,794,000, north of estimates of 3,750,000. The four-week moving average of continuing claims dropped by 147,250 to 3,978,500.

The March Institute for Supply Management (ISM)Manufacturing Index (chart) showed manufacturing growth (a reading above 50) grew at a faster pace than expected. The index rose to 64.7 from February's unrevised 60.8 level, and versus estimates of 61.5. The index jumped to the highest since the early-1980s as new orders, production, employment and backlog of orders all saw growth accelerate. However, inflation pressures remained elevated with the prices index at 85.6 after dipping from 86.0.

The ISM said, "The manufacturing economy continued its recovery in March. However, Survey Committee Members reported that their companies and suppliers continue to struggle to meet increasing rates of demand due to coronavirus (COVID-19) impacts limiting availability of parts and materials. Extended lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are affecting all segments of the manufacturing economy. Worker absenteeism, short-term shutdowns due to part shortages, and difficulties in filling open positions continue to be issues that limit manufacturing-growth potential."

The final March Markit U.S. Manufacturing PMI Index was revised slightly higher to 59.1 from the preliminary level of 59.0, in line with forecasts and above February's unrevised 58.6 level. A reading above 50 denotes expansion. The report noted that this reading was the second strongest improvement in the health of the U.S. manufacturing sector since data collection began in May 2007. The report also pointed out that overall expansion was supported by the steepest rise in new orders since June 2014, although production was reportedly held back by supply shortages.

Construction spending (chart) decreased 0.8% month-over-month (m/m) in February, versus projections of a 1.0% decline, and following January's downwardly revised 1.2% increase. Residential spending dipped 0.2% m/m while non-residential spending fell 1.3%.

Treasuries were higher, as the yield on the 2-year note was little changed at 0.16%, while the yield on the 10-year note fell 6 basis points (bps) to 1.68%, and the 30-year bond rate was down 7 bps at 2.34%.

With Treasury yields and the U.S. dollar having gained ground as of late, Schwab's Chief Fixed Income Strategist Kathy Jones notes in her article Why Bonds Still Matter, that despite the blip last spring, Treasuries continue to demonstrate negative correlation with stocks over the short and medium terms, helping cement their status as a safe haven during times of market stress—and there's no clear alternative to fill that role. And, while she doesn't expect inflation to be a significant problem over the next few years, she believes holding some inflation-linked bonds, such as Treasury Inflation-Protected Securities (TIPS), makes sense, to mitigate the risk of an unexpected spike in inflation. Kathy discusses in her latest commentary, Will the U.S. Dollar Lose its Reserve Status?, how easy monetary policy and rising federal budget deficits could undermine confidence in the dollar, but its role as the dominant global currency looks secure.

Finally, you can keep up with our latest views on the changing market landscape at our Market Insights page on www.schwab.com, and you can follow us on Twitter @SchwabResearch.

Please note: All U.S. markets will be closed tomorrow in observance of the Good Friday holiday.

Europe mostly higher ahead of holiday weekend and following data, Asia broadly higher

European equities finished mostly higher, with optimism of global economic recovery in 2021 appearing to buoy sentiment, while the markets digested yesterday's $2 trillion infrastructure spending plan. Economic data in the region also showed Eurozone manufacturing activity was revised to a faster pace of expansion than previously forecasted for March, as reported by Markit, and German retail sales increased by a smaller amount than anticipated for February. The euro and British pound were higher as the U.S. dollar modestly trimmed a recent bounce, while bond yields in the Eurozone and in the U.K. were lower. The markets may have been a bit subdued ahead of the Easter holiday weekend. Schwab's Jeffrey Kleintop notes in his article Bull? Bear? How about a "Bunny" Market?, that there are a variety of clashing factors affecting the stock market this year, including worries over rising interest rates countered by the confidence seen in booming business investment, and robust M&A activity. We expect the bunny market to continue hopping around in the weeks ahead, as it reacts to these factors.

The U.K. FTSE 100 Index was up 0.4%, France's CAC-40 Index and Switzerland's Swiss Market Index advanced 0.6%, Germany's DAX Index gained 0.7%, and Italy's FTSE MIB Index rose 0.3%, while Spain's IBEX 35 Index was little changed.

Stocks in Asia finished higher, adding to a weekly gain. Optimism of the expected sharp recovery in economic activity and strong forecasts for earnings growth in 2021 seemed to continue to counter concerns about the impacts of rising global bond yields and the recent resurgence of the U.S. dollar. Schwab's Jeffrey Kleintop discusses in his article, Have EM Stocks Lost Their Immunity to Rising Rates?, how Emerging Market (EM) stocks have taken the rise in yields the worst among major equity asset classes, but offering five reasons why EM stocks can likely still perform well as rates climb this year. The markets focused on details of the proposed $2 trillion infrastructure spending plan in the U.S. and as economic data showed Japan's Q1 Tankan survey of large manufacturing sentiment improved much more than expected into positive territory, while a private survey of Chinese manufacturing output surprisingly declined for March but remained in expansion territory. Moreover, Australia's exports for February dipped unexpectedly and the nation's retail sales declined by a smaller amount than anticipated.

Japan's Nikkei 225 Index rose 0.7%, with the yen holding steady, while China's Shanghai Composite Index also moved 0.7% higher. Australia's S&P/ASX 200 Index gained 0.6%, Hong Kong's Hang Seng Index rallied 2.0%, South Korea's Kospi Index advanced 0.9%, and India's S&P BSE Sensex 30 Index increased 1.1%.

Growth stocks regain footing this week

U.S. stocks finished the holiday-shortened week in the green with a bounce in growth stocks, paced by the Information Technology sector, helping the Nasdaq outperform and the S&P 500 breach the 4,000 mark for the first time. However, the Dow lagged behind amid the renewed demand for growth stocks and as Energy issued were the lone major sector to finish in the red. Treasury yields, which have spiked to pressure growth issues as of late, were mostly flat but choppiness in the bond markets remained. However, the U.S. dollar continued to bounce to potentially limit gains for the week. Crude oil prices declined as the blockage of the Suez Canal that brought a key global trade route to a standstill was finally resolved. Gold finished modestly lower in volatile trading of the precious metal. Consumer Discretionary stocks were among the best performers, along with Communications Services which shrugged off an implosion of Archegos Capital Management that fueled heavy selling pressure on media stocks. Optimism of robust economic and earnings growth in 2021 appeared to dominate sentiment, amplified by economic reports that showed U.S. Consumer Confidence surged and ADP's private sector employment report jumped by more than half a million jobs ahead of Friday's March nonfarm payroll report. Moreover, manufacturing data across the globe, notably in China, the U.S., the U.K. and the Eurozone all showed output in the sector continues to grind higher.

Next week, the markets will react to Friday's nonfarm payroll report, along with the ISM and Markit Services PMIs, factory orders, JOLTS' job openings report, the trade balance, initial jobless claims for the week ended April 3, and the minutes from the Fed's March monetary policy meeting.

Although parts of Europe will remain closed on Monday in observance of the Easter holiday, the international economic calendar next week has some reports that could foster some market reaction: Australia—the Reserve Bank of Australia monetary policy decision. China—Services PMIs, CPI and PPI. India—the Reserve Bank of India monetary policy decision. Japan— Services PMI and labor earnings statistics. Eurozone—Services PMIs and investor confidence, along with German factory orders. U.K.—Services PMI.

As noted in our latest Schwab Market Perspective: Moving, With Bottlenecks, U.S. economic growth is accelerating as vaccinations rise and social-distancing measures ease, but hopes for a long-lasting spending boom may hit a couple of speed bumps. Vaccine rollouts in major countries are proceeding at different speeds, but stock market performance contradicts what vaccination data would seem to imply for investors. Meanwhile, inflation-adjusted longer-term Treasury yields have risen on signs that the economy is bouncing back from the depths of the downturn last year.

Important Disclosures

Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.

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Stocks Post Weekly Gains Heading into Holiday Weekend

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