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Gene Walden
Senior Finance Editor


Stocks reach new highs as economy reopens

Thrivent Asset Management Contributors to this report: Mark Simenstad, CFA, Chief Investment Strategist; Steve Lowe, CFA, Vice President, Mutual Funds-Fixed Income; John Groton, Jr., CFA, Director of Administration and Materials & Energy Research; Matthew Finn, CFA, Head of Equity Mutual Funds; and Jeff Branstad, CFA, Senior Investment Product Manager

By Gene Walden, Senior Finance Ediotr | 04/06/2021

The stock market continued to surge to new records in the 1st quarter, as the vaccine roll-out led to optimism that the economy was on the road to recovery. The S&P 500® Index sailed past 4,000 for the first time on April 1, a day after finishing the 1st quarter up 5.77%.

Bond yields also rose to their highest level since the start of the pandemic, with inflation concerns ramping up after Congressional approval of another $1.9 trillion in stimulus funding.

Oil prices have also been on the rise lately, with airline and highway travel continuing to increase. The price of West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing, rose 21.93% in the 1st quarter.  

After a sharp rise in personal income and consumer spending in January, personal income decreased by 7.1% in February, and consumer spending decreased by 1.0%, according to a report issued March 26 by the Bureau of Economic Analysis. The decline was attributed to a drop in pandemic-related supplemental income payments and unemployment benefits. However, the stimulus package should put more money into consumers’ pockets and lead to higher levels of consumer spending.

Manufacturing activity in March posted its largest increase since 1983, according to the Institute for Supply Management (ISM) report issued April 1. “All of the six biggest manufacturing industries – Computer & Electronic Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Transportation Equipment; Chemical Products; and Petroleum & Coal Products, in that order — registered strong growth in March,” according to Timothy R. Fiore, ISM chair. 

Drilling down

U.S. stocks move up

The S&P 500 Index was up 4.24% in March, from 3,811.15 at the end of February to 3,972.89 at the March close. The total return for the S&P 500 (including dividends) was 4.38% for the month and 6.17% for the quarter. (The S&P 500 is a market-cap-weighted index that represents the average performance of a group of 500 large capitalization stocks.)

The NASDAQ Index was up 2.78% for the 1st quarter and up 0.41% in March, from 13,192.35 at the end of February to 13,246.87 at the March close. (The NASDAQ – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.)

Retail sales slip

After a large leap in retail sales in January, sales dipped by 3.0% in February, according to the Department of Commerce retail report issued March 16. However, retail sales were still up 6.3% from the same period a year earlier. Total sales for the December 2020 through February 2021 period were up 6.0% from the same period a year ago.

Nonstore retail sales (primarily online) dropped 5.4% for the month – but were still up 25.9% from a year earlier. Auto sales were down 4.2% for the month, but still up 9.2% from a year earlier. Department store sales were down 8.4% for the month – and still down 14.5% from a year earlier. Nearly every sales category was down for the month except gasoline station sales, which rose 3.6%, reflecting a rise in pump prices and an increase in demand.

Retail sales are expected to pick up going forward, aided by the recent round of stimulus checks and the gradual resurgence of stores, restaurants and other businesses as the pandemic recedes.

Unemployment rate drops

U.S. employers added 916,000 new jobs in March, and the unemployment rate dipped from 6.2% to 6.0%, according to the Department of Labor Employment Situation Report issued April 2. Most of the job gains came in the leisure and hospitality, public and private education, and construction sectors. For the quarter, the unemployment rate dropped 0.7%, from 6.7% to 6.0%.

The average hourly earnings for all employees on private nonfarm payrolls declined by $0.04 in March, from $30.00 per hour to $29.96.

Weekly unemployment claims declined to the lowest level since March 14, 2020 when the pandemic took hold of the economy. For the four-week period ending March 27, an average of 719,000 workers filed for unemployment. By contrast, during the first several weeks of the pandemic in 2020, workers filed more than 5 million claims per week.

Utilities and Consumer Staples enjoy March rebound

Through the first two months of 2021, the Utility and Consumer Staples sectors of the S&P 500 seemed to be the stray calves of the bull market, with both sectors sinking into negative territory. But they bounced back nicely in March, with Utilities jumping 10.51% to lead all sectors, and Consumer Staples moving up 8.19%. Also posting strong gains for the month were Industrials, up 8.91%, and Materials, up 7.58%.

For the 1st quarter, Energy led the way, as air and auto travel picked up and the economy began to rebound. Energy was up 30.85% for the quarter, followed by Financials, up 15.99%, and Industrials, up 11.41%.

At the bottom of the list was 2020’s leader, Information Technology, up only 1.69% for March, and 1.97% for the quarter.

The chart below shows the results of the 11 sectors for the past month and year-to-date:

Treasury yields on the rise

After dropping to record lows in 2020, the yield on 10-year U.S. Treasuries increased for the fourth straight month in March on inflation concerns. The yield jumped from 1.46% at the end of February to 1.74% at the March close. Through the 1st quarter, rates nearly doubled after ending 2020 at 0.92%.

Corporate earnings jump

Corporate earnings expectations continued to rise in the 1st quarter, as 12-month advanced earnings per aggregate share projections for the S&P 500 moved up 8.5%. That followed a large increase of 6.04% in the 4th quarter of 2020.

Forward P/E ratio inches lower

For investors concerned about rising valuations, the forward price-earnings ratio (P/E) of the S&P 500 actually declined slightly in the 1st quarter, indicating that anticipated earnings were keeping up with the rise in stock prices.

The forward P/E at the close of the 1st quarter was 21.88 after closing 2020 at 22.46. However, it is still well above the 2019 closing level of 18.18 and the 2018 closing level of just 14.4. In fact, over the past three quarters, the 12-month forward P/E has been at its highest level since 2002. The higher the P/E ratio the more expensive stocks are relative to their earnings. But if the outlook for corporate earnings continues to improve, that could help hold the line on the P/E level.

The forward 12 months earnings yield for the S&P 500, which is the inverse of the P/E, ended the quarter at 4.57%, which is slightly better than the 4.45% yield at the end of 2020. The 12-month forward earnings yield can be helpful in comparing equity earnings yields with current bond yields. Although the yield is about 2.4% lower than it was two years ago, it is still significantly higher than the 1.74% market rate of 10-year U.S. Treasuries.

Dollar gains versus Euro and Yen

The Euro dropped 3.95% versus the dollar in the 1st quarter while the dollar climbed 7.03% versus the Yen. Contributing to the strengthening dollar was the increase in vaccinations in the U.S. and approval of the new $1.9 trillion stimulus package.

Oil prices continue to rally

Oil prices rallied in the 1st quarter, as economic activity and global travel picked up. The price of West Texas Intermediate surged 21.93% in the 1st quarter – following a 20.64% increase in the 4th quarter 2020. After ending 2020 at $48.52 per barrel, the price finished the 1st quarter at $59.16.

Gold slumps

With businesses continuing to open up and economic uncertainty abating, gold prices have begun to fall from the record highs reached during the peak of the pandemic. Gold ended the 1st quarter at $1,715.60 per ounce, down 9.47% from its price of $1,895.10 at the close of 2020.

International equities edge up

International equities moved up in the 1st quarter, as the MSCI EAFE Index rose 2.83% for the quarter, from 2,168.87 at the end of December to 2,208.32 at the close of March. (The MSCI EAFE tracks developed-economy stocks in Europe, Asia and Australia).

What’s ahead for the economy and the markets? See: 2nd Quarter Market Outlook: Solid economic growth on the horizon by Mark Simenstad, Chief Investment Strategist, Thrivent Asset Management

Media contact: Samantha Mehrotra, 612-844-4197;

All information and representations herein are as of 04/06/2021, unless otherwise noted.

The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management, LLC associates. Actual investment decisions made by Thrivent Asset Management, LLC will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon, and risk tolerance.

Any indexes shown are unmanaged and do not reflect the typical costs of investing. Investors cannot invest directly in an index.

Past performance is not necessarily indicative of future results.

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