You Can’t Keep a Good Market Down: Dow Logs 4 Weeks of Gains

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All three U.S. indices have been soaring for the last month, as investors look to cash in on robust economic data and vaccine optimism.

Pedestrians pass the New York Stock Exchange on Feb. 16, 2021, in New York. (AP Photo/Frank Franklin II)

MANHATTAN (CN) — With the momentum of weekly gains already propelling markets forward, Wall Street latched onto booming retail numbers and great earnings reports to keep the party going.  

The Dow Jones Industrial Average, which gained 402 points this week after breaching the 34,000 ceiling on Thursday, has posted positive gains for the last four weeks. The S&P 500 Industrial Average netted just 57 points this week by the closing bell, but it has been riding a four-week winning streak. The Nasdaq, which increased 152 points this week, has shown its investors three straight weeks of gains.

Investors are becoming increasingly hopeful about the economy, despite some underlying worries that it may be overheating and a few snags with the Covid-19 vaccine rollout.  

These concerns about vaccine safety and inflation appeared far off Friday, however, as the University of Michigan’s Consumer Sentiment Index hit 86.5, its highest level since March 2020.

“This is the opposite of the usual pattern over the past fifty years, when recoveries were paced by larger and earlier gains in expectations,” the survey’s chief economist Richard Curtin said in a statement. “Fortunately, this surge in inflation expectations was still well anchored by much lower inflation expectations over the next five years. Perhaps more importantly, half of all consumers expected declines in unemployment, the highest level ever recorded.”

More good news came as earnings season once again started, showing particularly strong growth in the banking sector.

Bank of America posted $8.1 billion in net income, with deposits up 25%, during the first quarter of 2021. It also released $2.7 billion in reserves, showing confidence in the recovering economy. “While low interest rates continued to challenge revenue, credit costs improved and we believe that progress in the health crisis and the economy point to an accelerating recovery,” CEO Brian Moynihan said in a statement.

Fellow financial institution Goldman Sachs did even better, beating analysts’ expectations to post $17.7 billion in revenue and $6.84 billion in net earnings last quarter. The investment bank has seen nearly 500% growth in net earnings since the end March 2020.

Similarly beating estimates was Citigroup, which reported $19.3 billion in revenue and $7.9 billion in net income last quarter. Much of the firm’s growth came from its investment banking division, which saw a 46% increase in revenue.

JP Morgan Chase and Morgan Stanley also rounded out the earnings with relatively strong outings, as customer deposits are up and investment banking divisions are reaping massive bucks.

“With all of the stimulus spending, potential infrastructure spending, continued quantitative easing, strong consumer and business balance sheet, and euphoria around the potential end of the pandemic, we believe that the economy has the potential to have extremely robust, multi-year growth,” JPMorgan Chase CEO Jamie Dimon said in a statement.

But the road to pandemic-ending euphoria has not been bump-free, as evidenced Tuesday when the U.S. Food and Drug Administration counseled the halting of Johnson & Johnson’s vaccine due to concerns about blood clots.

The clots affected just six out of about 6.8 million doses of the vaccine distributed since the end of February when it was approed. In total, more than 80 million Americans have been fully vaccinated against Covid-19, according to data from the U.S. Centers for Disease Control and Prevention.

Markets nimbly rebounded from the news — perhaps in part to reports from the Biden administration that Pfizer and Moderna vaccines could shoulder the load, the fact that J&J vaccinations had accounted for just 5% of the nationwide total, and predictions by some experts the pause would be temporary.

“That drumbeat of reassurance, combined with a further decline in Treasury yields following a strong auction, helped stocks rally into the close and the S&P 500 finished just off the best levels of the day, and at a new high,” Tom Essaye of the Sevens Report wrote in an investor’s note on Wednesday.

Essaye pointed to herd immunity and a fully healed economy as the key for markets, noting that the dayslong pause in J&J vaccinations “does not appear to materially alter either one of those expectations, which are both for early summer.

Further good news, in the form of unemployment claims and retail sales, also helped inoculate markets.

According to data from the Labor Department, new jobless claims fell to their lowest point during the pandemic, with 576,000 initial claims filed the week ending April 10. The number of new claims is now less than double the number from March 14, 2020, just before lockdowns began and the economy tanked.  

On the spending front, retail sales predictably shot up last month to almost 10% as many Americans again received their stimulus checks, with some experts saying that surge is only a fraction of what it could have been since most of the stimulus money seems to have been put into savings.

“We estimate the checks sent in March were worth around $350 billion, while retail sales increased by $55 billion, suggesting that only a small fraction of the checks were spent immediately,” wrote Michael Pearce of Capital Economics. “This is in line with previous survey evidence from the NY Fed, which showed most of the stimulus was largely saved or used to pay down debt.”

Pearce noted retail sales will “almost certainly drop back” this month as stimulus spending wears off, but he noted spending should again pick up later in the second quarter as the vaccination rollout proceeds at a greater clip.