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Weekly Market Update for April 1, 2021

by JM Hanley

Markets finished the week higher, but collectively remained somewhat directionless in this holiday-shortened week. Growth-oriented stocks, like technology firms, slightly outperformed value stocks like industrial companies. This came despite little change in interest rates – but, of course, it follows weeks of underperformance by the long-favored growth trade. The week opened with a conclusion to an episode from last week. A Japanese container ship had run aground in the Suez Canal, obstructing the 12% of global trade that flows through it. An Egyptian crew managed to refloat the ship by Monday morning, enabling traffic to resume by Monday evening with little lasting damage.

Its place was briefly taken by another incident involving the collapse of unregulated hedge fund Archegos Capital. Numerous large banks, including Nomura and Credit Suisse, had essentially lent the fund unexpectedly large sums (via instruments called swaps) to buy stocks then held by the banks. After the share price of one of the positions fell, Archegos found itself unable to service the debt, which prompted the banks to rush to sell the equity holdings. Markets and regulators had apparently been unaware of the extent of banks’ exposure to such arrangements. The sales, and the regulatory and liquidity concerns the incident raised, were a material headwind to the market early in the week.

Economic data was mixed. Consumer confidence increased considerably in March as public optimism about the vaccine rollout rises. One measure of manufacturing activity reached its highest level since 1983. With coronavirus an impediment to most travel and entertainment, a lot of discretionary spending has shifted from services to goods. Less positively, weekly jobless claims came in higher than expected. All eyes now turn to tomorrow’s March jobs report (although the market will be closed). With the Fed now more preoccupied with robust employment rather than containing inflation, payrolls have gained importance as a leading indicator of interest rates. Some economists expect a blockbuster number, citing an easing of business restrictions and bad weather. On the other hand, a March payrolls report from processor ADP was worse than expected.

Finally, late Thursday, OPEC decided to increase oil production for the next three months, as they anticipate demand will increase rapidly as the economy reopens. Such news is typically negative for the price of oil. This time, OPEC’s apparent optimism about demand this summer pushed prices up.

The race between vaccines and new coronavirus variants continues. As business restrictions continue to ease along with public behavior, cases ticked up 11% this week. However, the US vaccination rate has also gained steam, to 2.5m doses per day. The rest of the world is not doing as well, which could prove a damper on coordinated economic reacceleration.

Next week will be quiet, before first-quarter earnings reports begin the following week. Tomorrow’s jobs report could drive trading action early in the week. Next Friday will bring PPI, the Fed’s preferred measure of inflation.

Our office will be closed tomorrow in observance of Good Friday.

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Ulland Investment Advisors

4550 IDS Center · Eighty South Eighth Street · Minneapolis MN 55402 · Telephone: 612-312-1400 · Facsimile: 612-204-3464