Bulls are still in control, Dogecoin frenzy

Week from 3 to 9 May 2021

Even though the U.S. stock market was breaking down in the middle of the week, Friday’s disappointing payrolls report triggered a trend reversal. Nonfarm payrolls (NFP) increased by only 266,000 jobs last month vs almost one million expected. This news cooled fears that the Fed may scale back the size of its huge bond-buying program. Market reaction was immediate. Bond yields and dollar index turned lower while stocks and gold sparkled again.

S&P 500 and Dow Notch Record Close

The unexpectedly weak April jobs report came as a surprise to most market players, giving the advantage to the bulls. Yet U.S. Treasury Secretary Janet Yellen said Tuesday that rate hikes could make sense to stop the economy overheating. The NFP numbers ease such fears, at least in the short term. The Dow and S&P 500 thus closed at record highs Friday. The Dow rose +2.67%, or 903 points, to end the week at 34,777.76. The S&P 500 broke the 4,200 resistance (+1.23%) hitting an all-time closing high of 4,232.60. On the flip side, the Nasdaq Composite posted its third negative week in a row. The benchmark index fell -1.51% week-over-week as the tech rebound on Thursday and Friday only offset some of the losses suffered earlier in the week.

Once again, energy was the best performer among the S&P sectors (+8.89%), after oil prices climbed to eight-week peaks (WTI crude up +2.08%). Other cyclicals including materials (+5.86%), financials (+4.20%) and industrials (+3.36%) supported the broader market. By contrast, consumer discretionary lagged behind (-1.17%). The Amazon and Tesla stocks (down -5.07% and -5.23% respectively) dragged the sub-index lower. It was also a negative week for utilities (-1.12%), real estate (-0.88%) and information technology (-0.50%) as Apple traded in the red (-0.95%) in the wake of the legal battle against Epic Games. The trial will last three weeks (as from May 3, 2021).

The European markets performed well as the Commission plans to reopen the continent to vaccinated holidaymakers by the start of June. The MSCI EMU was up +1.52% and the FTSE 100 jumped +2.29%. In Asia, the Shanghai Composite was down -0.81% while the Nikkei ended its four-week losing streak with strong gains (+1.89%). Indian stocks continued to gain momentum (Nifty 50 up +1.31%) despite ongoing concerns over rising Covid-19 cases. Korea’s Kospi followed suit (+1.57%).

Bond Yields Lower, Gold Rallies Above $1,800 Key Resistance

On the interest rate front, yields on U.S. 10-year notes eased back to +1.58%, though the market was struggling to break below +1.51% on Friday. Credit markets fared well. Investment grade corporate bonds were up +0.15% in Europe and +0.69% across the Atlantic. High yield bonds gained +0.03% in Europe and +0.28% in the U.S. while emerging debt jumped +1.58% thanks to a weaker greenback (dollar index down -1.19%). Elsewhere the spot price of gold rose by $62.11 at $1,831.24 an ounce, thereby printing a weekly gain of +3.51%.

Dogecoin Mania

In the cryptocurrency space, Dogecoin was the flavor of the week ahead of Elon Musk’s appearance on Saturday Night Live. The asset Musk had touted surged 100% from April 30 to May 7 to a new record high of over 70 cents, before falling during the NBC show at around 50 cents. Despite the week-end’s correction (up to 36 cents on Sunday) and extreme volatility, Dogecoin is now the fifth largest cryptocurrency by market cap behind Bitcoin, Ethereum, Binance Coin and Ripple.

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