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Weekly Market Update for April 30, 2021

by Jim Ulland

Inflation chatter sent the market lower this week. During conference calls by CEOs to report Q1 earnings, there were numerous mentions of companies facing price increases from suppliers and shortages of critical parts like semiconductors in the auto industry. This was aggravated by a lack of workers in entry level jobs, some of whom have found it more profitable to stay home collecting an unemployment check and Covid bonus that exceeds their previous wages. The addition $300 per week of unemployment payments is on top of regular unemployment. The additional payment expires in September.

The fear of inflation also was fueled by huge spending programs that were proposed by the administration. The Federal Reserve left interest rates low and said it had less concern about inflation than the market and viewed the current uptick as temporary. The 10 Yr Treasury rate rose during the week and pressured our fixed income positions.

GDP growth for Q1 was remarkable at 6.4%, just below the Fed’s estimate for 2021 at 6.5%. Economic growth prior to the pandemic was 2-3%. Consumer confidence also moved higher and unemployment filings moved lower. Personal income soared 21% on the back of stimulus payments and the jobs created by reopening the economy.

The biggest economic news of the week was contained in corporate earnings reports. Facebook, Google (Alphabet), Amazon, Visa, Boston Scientific, and numerous others had explosive earnings. For instance, Google’s revenue was up 32% and earnings per share were up a startling 266%. Facebook’s earnings were up 93%. With over half of the largest 500 companies reporting, the average earnings per share growth rate was over 40%. To keep stock prices rising, the country will have to be fully reopened. New York City is doing just that as of July 1st. Schools also must be reopened for full in-person learning. This will be a big educational benefit besides allowing those parents forced into doing childcare to go back to work. Vaccination rates must get higher as well so the country can return to normal. In MN, 55% of adults have had at least one shot. We think all of this will happen by the fall.

The market may take a rest before moving higher. The SP500 set two records highs during the week but closed flat. Corporate share buybacks will provide some price support. For instance, Google increased its share buyback authorization by $50 billion! But the market may want assurance that inflation will be contained, and that supply chains and worker availability will return to normal conditions before moving much higher. A pause would be a good entry point for investors. For the week, the NASDAQ was down -0.39%. Monday the SP 500 was +0.18%, Tuesday -0.02%, Wednesday -0.08%, Thursday +0.68%, and Friday -0.72%.

Earnings releases will continue this coming week. The increasing level of vaccinations should start to reduce the infection rate and change the news narrative to one that is more positive.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

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Ulland Investment Advisors

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