US weekly wrap: Strong macro data, Fed’s supportive policy propels market to record high

The week’s trading started off on a strong note, after March payrolls data released over the previous week showed robust jobs addition. After moving to a new high on Monday, the market took a breather on Tuesday. The indices resumed their rally over Wednesday and Thursday, after the Fed reiterated its accommodative stance to revive the economy. On Friday, the S&P 500 closed above 4,100 and posted its third-straight weekly rally- the longest winning streak since October. Tech shares also rallied among the S&P 500 shares during the week, helped by gains in Apple and Microsoft, which together account for roughly 40% of the sector’s market capitalization in the index. For the week, S&P 500 soared 2.7%.

Weekly US market stats with IND

Let’s see the major developments during the week

Jobs data mixed: The Labor Department in the US reported that employers added 916,000 jobs in March. This is the highest since August-20.  An interesting trend was observed relating to a rebound in the hospitality sector. The reopening of bars and restaurants led to 280,000 jobs being added in leisure and hospitality industries. However, the jobs scenario remains mixed, as Thursday’s report indicated that initial jobless claims had hit their highest level (744,000) in three weeks.

Progress on Tax proposal: After announcing a USD2.25 trillion infrastructure plan which included a corporate tax hike to 28%, President Biden said that he’s willing to negotiate the tax hike. The US administration is now working towards a new tax proposal, after Treasury Secretary Janet Yellen called for a global minimum corporate tax rate. This is being done in an effort to prevent companies from moving to lower tax rate regimes.

Service sector showing robust recovery: The Institute for Supply Management’s (ISM) index for service sector activity jumped to a fresh record high, indicating very good recovery in the service sector. Details in the ISM report were also strong, with broad-based strength in employment, new orders, and business activity offsetting weakness in inventories and export orders. 

Producer prices data stokes fear of inflation: On Friday, the Bureau of Labor Statistics reported that producer prices rose by 1% in March, much higher than analyst estimates. This is raising fears of inflation. On a YoY basis, the producer prices have increased by 4.2%, the highest in the last 10 years. Investors seemed to be keeping an eye on supply chain pressures, particularly delays at U.S. ports and the global semiconductor shortage, which has led to temporary shutdowns in automotive production lines.

Oil prices drop: Crude oil prices dropped on Monday, after OPEC agreed to increase supplies by 2 million bpd between May and July.  While there was some recovery over the next two days, the markets were concerned about fuel demand, in light of the rising number of Covid-19 cases across the world.

US Treasury yields: US Treasury Yields remained volatile in the week, as investors took stock of a host of macroeconomic data. The yields fell on Tuesday, as investors awaited release of the Fed’s minutes (from March’s policy). The yields rose marginally on Wednesday. Treasury yields fell on Thursday, after jobless claims data came in below street expectations.  However, a raise in the producer price index in March raised fears of inflation on Friday, and the yields again went up.

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