Markets are ‘frothy’ says Powell

Week from 26 April to 2 May 2021

Fed Chairman Jerome Powell said parts of the markets ‘are a bit frothy’ and kept benchmark rates unchanged. There is growing confidence over the economy's outlook with a first-quarter GDP above expectations in the U.S. (+6.4% beating an estimation of +6.1%). Against this backdrop, most companies delivered better than expected quarterly results. Those of mega-cap tech giants smashed records. Yet they experienced mixed fortunes this week. In spite of stellar results, Apple (-2.13%) and Microsoft (-3.43%) shares broke their 5-week winning streak. By contrast, Facebook was up +7.89% after reporting blowout quarterly earnings of $3.30 per share that beat estimates for $2.33. In the same way, Google jumped +4.10% and Amazon gained +3.79%.

Cyclicals Up

Bullish forecasts for a demand recovery this summer partly counterbalanced worries about surging Covid-19 cases in Japan and India where the health crisis is rapidly escalating.

The S&P 500 was flat (+0.02%) while the VIX index edged back up to 18.6, close to its long run average. The Dow Jones Industrial Average slipped 0.5% and the Nasdaq Composite slid 0.39%. Among the S&P sectors, cyclicals resumed their climb higher, with energy and financials leading the pack. Oil prices (WTI crude up 2.32%) supported energy stocks (+3.58% weekover-week). Traders bet that OPEC+ (major oil producers) will stick to plans for a phased easing of oil production restrictions in the months ahead. The pick-up in yields (10-year T-Note yield rising to +1.64% from 1.58%) pushed financials higher (+2.38%). Communication services (+2.88%) benefited from the Facebook-led rally. On the flip side, information technology lagged behind (-2.12%). Health care also stifled gains in the broader market (-1.90%).

European and Asian indexes closed mixed. The MSCI EMU was down 0.59% but the FTSE 100 rebounded (+0.45%). The Nikkei was on track for a fourth straight week of losses (-0.72%). China’s Shanghai Composite did no better (-0.79%) than the Japanese benchmark. The same was true of the KOSPI (-1.04%) and the S&P ASX (-0.49%). India’s Nifty 50 was the only major regional index in the green (+2.02%) despite the sharp rise in Covid-19 cases. Investors want to believe that the lockdown period will not last long and as a result, will not have significant economic impact.

In the bond space, investment grade corporate bonds traded lower (-0.21% in the U.S., -0.17% in Europe), like emerging debt (-0.37% in local currencies). Conversely high yield bonds regained their losses from last week (+0.13% in Europe, +0.12% in the U.S.). Elsewhere gold was weaker (-0.5%) as the greenback was strengthening (dollar index up +0.48% over the week).

SEC Delays Decision on Approving VanEck Bitcoin ETF

The 45-day window for the VanEck Bitcoin ETF ends May 3, but the SEC finds that it is appropriate to take more time to evaluate the proposed rule change. The coming weeks will be decisive as a bitcoin ETF is key for mainstream adoption.

Find and compare over 7,000 ETFs with our free tools:

• ETF Screener
• ESG Observatory
• Download the 2021 Trackinsight Global ETF Survey