It seems like it was last week we were ringing in the new year and now April is here - which means we are in the 2nd quarter of 2021. The year and the market have started off on a fast start. The vaccine rollout and the pent-up demand of consumers to get out and spend have teamed up to create economic demand like we have not seen in a while. So, what has happened so far this year and where are we headed?
The belief is that companies will continue to reach record earnings as states and the economy continue to open back up. These earnings are likely to be confirmed later this month when companies release their Q1 earnings reports. The S&P 500 is up over 5% and the Dow Jones is up over 10% through Q1. Unlike last year where a lot of the gains were in the more technology focused stocks, this fast start to the year is spread out across the market with 91% of S&P 500 companies above their 200-day moving average, a key support level for market technicians. In the near term, we do expect this fast start to continue for many of the same reasons - including more people being vaccinated and more states continuing to open. As the year continues, we do expect returns to become more normalized (with the possibility of normal short-term pullbacks) than they have been over the past 12 months. But also believe any weakness that is seen in the market could be a good buying opportunity.
As we head into Q2 and beyond, the vaccine rollout supply chain, the infrastructure spending plan, and higher taxes to support the stimulus will become the focus of investors. The initial infrastructure plan laid out by President Biden is around $2 trillion, which will be paid for by higher corporate taxes, most likely beginning in in 2022. This proposal would take the corporate tax rate from 21% to 28%, but some Washington insiders believe it may only see the light of day at 25%. When it comes to the tax plan for individuals, we believe we will see more on this later in the month. Where these rates end up, is just a guessing game right now. Washington insiders also believe that these rates will be watered down from what President Biden initially discussed earlier on. It does look like both corporate and individually tax rates will get done this year with a start date of 1/1/2022. Where we sit right now, it is our belief that this market continues to roll on and that the reopening and the recovery outweigh the drag from the massive stimulus spending.
In the 2nd quarter, the biggest thing we are keeping our eye on is Q1 company earnings, which begin later this month. Year over year these Q1 earning are expected to be up drastically, as last year at this time we were in the early stages of lockdowns. Although the major beneficiaries of the reopening have been the more value-oriented companies – growth companies that were the winners of the lockdowns last year are expected to continue with strong earnings numbers. It will be interesting and insightful to hear from these companies and their leaders to see where they believe things are headed and where the next leg of performance will come from as the recovery continues.
Above all else, we appreciate each and every one of our clients and friends who constantly put their trust and faith in us. As always, if there is ever anything you need from us, do not hesitate to reach out.
Any opinions are those of Myles Zueger and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Inclusion of these indexes is for illustrative purposes only.