Recent economic data are showing signs that the U.S. is recovering more quickly from the pandemic than expected. Nowhere is that more notable than in last week’s PMI numbers. As illustrated in the chart, the U.S. recorded a strong March ISM manufacturing index of 64.7, far surpassing the consensus expectation of 61.5.
This 37-year record high reflects robust manufacturing activity driven by strong growth in orders, production and employment, along with increases in prices paid for inputs.
The services index also had a stellar March, coming in at 63.7, +8.4% from February, with all 18 service industries exhibiting growth. Previously lagging manufacturing, the service sectors appear to finally be catching up. Service sector growth is likely to remain elevated due to pent-up demand, stimulus checks and increased optimism as vaccines are distributed. Internationally, PMIs also painted an optimistic picture, with the J.P. Morgan global composite output PMI coming in at 54.8, a remarkable improvement from its April 2020 low of 26.2. Despite vaccine rollout challenges and further lockdowns, the eurozone composite PMI moved further into expansionary territory at 53.2. China’s composite PMI was also expansionary at 53.1, although it remained lower than at the end of 2020 due to new COVID-19 restrictions.
With economic global growth clearly beginning to accelerate, investors may want to consider making portfolio adjustments that recognize the opportunities and challenges presented by a more rapid recovery.
-JP Morgan
Happy Monday. Good Luck out there this week.
Global Spotlight
A slew of economic data from China. The data will come out over the course of the week, and will culminate in the release of GDP for Q1-2021 on April 16.
Indirect talks between Iran and the United States in Vienna. The talks will continue April 14 after progress was reportedly made during meetings the previous week.
Ecuadorian, Peruvian and Bolivian elections. The three votes will all occur April 11, with the countries holding presidential runoff elections, congressional and first-round presidential elections, and runoff gubernatorial elections, respectively.
The Cuban Communist Party chooses new leadership and assesses economic policy. The Party will convene April 16-19 against the backdrop of broader Cuban discontent over a deteriorating economic situation, and the meeting will be focused on how the party can update its current socialist economic model without betraying communist values.
Total and China National Offshore Oil Corp. probably finally greenlight Uganda’s long-awaited Lake Albert oil projects. Approval is expected April 11 for the projects, which collectively will produce about 260,000 b/d and include a heated crude oil export pipeline through Tanzania.
Japanese Prime Minister Yoshihide Suga meets with U.S. President Joe Biden in Washington. The April 16 visit will mark the first face-to-face visit of a world leader since Biden took office, strengthening Japan’s central position in U.S. Indo-Pacific and China policies.
The Turkish Central Bank’s Monetary Policy Committee meets for the first time under new Central Bank Gov. Sahap Kavcioglu. Kavcioglu shares President Recep Tayyip Erdogan’s dislike for high interest rates, which has heightened public interest in whether the April 15 committee meeting will see a possible rate cut even amid significant inflationary pressure in Turkey.
Stratfor.com
Economic Calendar
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
Briefing.com
Earnings
Source I/B/E/S data from Refinitiv
Aggregate Estimates and Revisions
- 21Q1 earnings are expected to be 25.0% from 20Q1. Excluding the energy sector, the earnings growth estimate is 26.0%.
- Of the 21 companies in the S&P 500 that have reported earnings to date for 21Q1, 81.0% have reported earnings above analyst expectations. This compares to a long-term average of 65% and prior four quarter average of 76%.
- 21Q1 revenue is expected to be 8.8% from 20Q1. Excluding the energy sector, the growth estimate is 10.3%.
- During the week of April 12, 22 S&P 500 companies are expected to report quarterly earnings.
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Of Note:
I found a great article that discusses 5 ideas that can put pressure on the market. These ideas could also affect the economy in ways that will cause more volatility.
Here are the scenarios.
- Materially higher interest rates begin to hurt equity valuations. The S&P today is dominated by strong companies, but higher discount rates will hurt equity valuations.
- US consumers spending will not be as high as expected. Everyone has a lot of debt and the money that is being printed is not going to color TV’s.
- Pandemic Peace will be over once vaccinations create the comfort level diplomacy by other means. Geopolitical risk is always there, but this world lock down forced a lull that has not been seen in 100s of years.
- Index Concentrations backfire. A few companies like AMZN, FB, GOOG, and TSLA make up a large percent of the S&P 500. Can this sustain the regulatory environment now?
- Winning ideas in terms of Index-based investing may not be right. The stuff that are rising now will they be rising in the next two years.
Capital has never been more plentiful. The hard decision is where to put that capital to store the wealth. There are so many other places to put capital besides the S&P 500. (Digital Coins, NFT, IPO, to name a few)
