Markets headed higher to kick off this four-day week.
First, the scoreboard:
- Dow: 16,177.1 (+150.5, +0.9%)
- S&P 500: 1,831.1 (+15.5, +0.4%)
- Nasdaq: 4,022.2, (+22.5, +0.5%)
And now the top stories:
- Once again, the tech-heavy Nasdaq underperformed the S&P 500. This ongoing trend of investors rotating out of high-priced, growth stocks and into low-priced, value stocks began when the Nasdaq topped on March 5. Deutsche Bank’s David Bianco suggested that at least some of the selling is due to investors’ aggregate tax bill due in April being around $50 billion higher this year. Morgan Stanley’s Joachim Fels speculated this could be investors buying into Larry Summers’ “secular stagnation” thesis.
- Deutsche Bank’s Keith Parker suggested that this market move could be explained by the positioning of the big institutional investors, like hedge funds and mutual funds. “Through the first two months of the year, long/short equity hedge funds and mutual funds were neutral the market but long growth stocks, which helped underpin outperformance through the January-February sell-off,” he observed. “The rotation out of growth and into value starting in early March hurt and funds were forced to unwind positions.”
- Earnings season continued this morning with banking giant Citi announcing Q1 financial results that beat analysts’ expectations. Earnings came in at $1.30 per share, which was much stronger than the $1.14 expected. “Despite a quarter that was difficult for our company, we delivered strong results,” said CEO Michael Corbat.
- Today’s retail sales report was a home run. Retail sales jumped by 1.1% in March, beating expectations for a 0.9% gain. Excluding autos and gas, sales increased by 1.0%, which was much better than the 0.4% expected. All of this is “partly due to households making up for lost time after the unusually bad weather kept them away from the malls in previous months,” said Capital Economics’ Paul Dales. “Nonetheless, it means that real consumption growth in the first quarter could be a little stronger than the 2.0% we have been expecting.”
- Chris Rupkey of Bank of Tokyo-Mitsubishi was pretty psyched about the report. His response: “Slack in the labor markets so demand is not what it should be? Tell that to the American consumer who shot the lights out as the coldest quarter in decades came to an end. Let’s not hear why we need to tread cautiously lest the economy falters in its latest step forward. This is not a fragile economy. Significant numbers of unemployed are not being left behind. There is no mass unemployment out there.”
- However, Morgan Stanley’s Ted Wieseman pointed to one caveat: “It’s possible March upside was exaggerated by seasonal adjustment problems with the late Easter,” he said. “We didn’t see anything that looked questionable about the seasonals this year, but the shifting timing of Easter always creates the risk of some noise in the numbers in March and April.”
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