Weekly Market Update 04/24/2021

After a week off last week due what turned out to be a severely jammed thumb, thus eliminating my ability to type, I am happy to be back bringing you this week's market update.  As we continue to look for the next catalyst either up or down in this "New Normal" world, this week we saw a sideways movement that, until we find that catalyst, could be recurrent. However, with the promising news of a continued vaccination boom, and talks of infrastructure seemingly going well, we continue to wait and see where things will go. 

Here is this week's update --  

The Market snaps hot streak amid consolidation activity and tax news 

The U.S. stock market was perched at a record high on April 16, supported by a foundation composed of the budding economic recovery, rising corporate profits, and Federal Reserve stimulus¹. Glimmers of adversity emerged last week, however, with the S&P 500 falling 3 of the five days¹. The emphasis is on "glimmers" because the market is just 1.2% below the recent high¹. But given the sharp and steady gains over the past year, even a little volatility might feel uncomfortable. After all, there have only been 28 days in the last twelve months in which stocks have dropped by more than 1%.  Looking beyond daily moves, more broadly, there have been just three 5% pullbacks and no 10% corrections in the last year, during which the S&P 500 has returned 52%. ¹.

The stock market finished mixed and little changed in a week marked by consolidation activity and heated tax discussions. The S&P 500 (-0.1%), Dow Jones Industrial Average (-0.5%), and Nasdaq Composite (-0.3%) finished slightly lower, while the Russell 2000 (+0.4%) closed slightly higher. 

Starting with some perspective, the S&P 500 was up 7.0% over the prior four weeks with roughly 95% of its components trading above their 200-day moving averages. Sentiment had gotten really bullish, too, giving credence to the view that the market was due for normal sideways action or a pullback. 

The market took the former route, seemingly allergic to selling interest. There was one day of noticeable selling, though, and that was on Thursday after Bloomberg reported that President Biden was planning on proposing increasing the capital gains tax rate to 39.6% from 20.0% for those earning $1 million or more.

This rate would be bumped to 43.4% when including the 3.8% tax on investment income that funds the Affordable Care Act -- and that's before state taxes are applied. Based on the facts that The New York Times published a similar report earlier in the day and that this was a part of the president's campaign, the news was viewed a convenient excuse to take profits. 

True to recent usual form, though, investors bought the dip on Friday amid optimistic undertones that comprised of speculation that negotiations could reduce the rate, strategies to work around the taxes, and observations about the market's historical ability to weather tax increases.

Despite the comeback effort, the S&P 500 energy (-1.8%), consumer discretionary (-1.2%), and utilities (-1.0%) sectors still closed lower by at least 1.0%. The health care (+1.8%) and real estate (+2.0%) sectors were the clear winners. 

In other key developments, earnings reports continued to beat expectations for the most part, weekly initial claims fell to a new post-pandemic low at 547,000 (Briefing.com consensus 600,000), and new home sales surged to its highest annual rate (1.021 million) since August 2006. 

The 10-yr yield was unchanged at 1.57% in a tight-ranged trading week. 

Although we do believe the market will continue its bull march, join us May 6th for our Quarterly Market update for more information on all these subjects and more.  

As always, it is my pleasure to bring you this weekly update. If this or anything else is causing you pause or you would like further details, please feel free to reach out to me and we can schedule some time to chat. 

Justin J. Long CFP®
Founder/Lead Advisor
Diazo Wealth Group
702-745-1800 Direct
702-278-6560 Cell

Upcoming Economic Calendar

Source: 1. FactSet

Source: Week in perspective provided by Briefing.com. Briefing.com offers live market analysis on their web site www.Briefing.com.

Innovative Adviser Solutions, LLC, a registered investment adviser, dba Diazo Wealth