S&P 500 Futures

Breakout Friday

Breakout Friday confirmed a low on Thursday which should bring us to new highs as Q1 comes to a close. The rally into the final hour was dramatic and foreshadows a run higher into Q2 where the economy will re-open. There has been an active rotation among sectors where value sectors like energy are being sought while technology has paused on concerns of rising interest rates.

The last six weeks have been a see-saw for the stock market as 10Yr Treasury yields melted-up. Rising rates are typical as an economy comes out of a recession, however, many believe that the government’s massive stimulus efforts will come back to haunt the markets in the form of inflation. A distinct possibility but it is too early in the recovery process to parse out inflation data and conclude that drove the price action in bonds this quarter. There was evidence of interest rates beginning to consolidate so we could see buyers in binds into the Q1 close next week.

Earnings season is right around the corner and the economic data next month should show more evidence of the economy re-opening. Companies will still be challenged by supply lines but consumers should spend their pent-up savings so a bump in consumption is due next month. Plus, warmer weather in the northern states bodes well for business.

Chart of the Week!

The massive Ever Given shipping container vessel is now stuck in the Suez Canal – causing disruptions in global supply chains. A reminder of just how much the global economy relies on these trade routes. The chart below illustrates growth rates in Asia and how vital the Suez Canal is in shipping goods to Europe.

Statista Shipping Hubs

Economic & Central Banking Snippets 

  • Initial jobless claims fell to 684k from 770k which was the lowest reading since March of last year. Continuing claims also continued to shrink from 4.13mm to 3.87mm in a sign that the job market is recovering.
  • The Fed’s balance sheet is almost at $8 Trillion. There is no limit and the Fed is intent on continuing its emergency policy of zero rates and $1.4T of QE.
  • Temporary limits on dividend payments and share buybacks will end for most banks after June 30. This follows the completion of the Federal Reserve’s annual stress tests. A welcome sign for the sector. (WSJ)
  • Federal Reserve Chairman Jerome Powell said that the federal government can manage its debt at current levels but politicians should seek to slow its growth once the economy is stronger. 
U.S. Primary Deficits and Net Interest as a share of GDP
  • Bank of England Chief Economist Andy Haldane has predicted a “rip roaring” recovery for the nation if consumers even spend a small amount of their extra savings when lockdowns are lifted. Tally-ho!
  • Resurgent economies and a burst of demand for consumer goods are heaping pressure on already strained supply chains. The shortages are acute in the automobile industry, where manufacturers have cut back production due to limited supplies of semiconductors. But difficulties in securing raw materials and other inputs have recently been worsened by a series of one-off disruptions. The latest of those came with the blockage of the Suez Canal by a grounded container ship. That followed a fire on Friday at a factory of one of the world’s leading auto chip makers in Japan. And last month’s freeze in Texas triggered mass blackouts that closed some of world’s largest petrochemical plants. (WSJ)
Purchasing Managers Index for Input Prices
Median Existing Home Prices
  • With prices rising and Covid-19 concerns lingering, home buyers are moving in with their parents and siblings. Some 15% of people who bought homes between April and June of last year planned to have multiple generations living there, according to a survey by the National Association of Realtors. Meanwhile, home prices keep rising. (WSJ)

Macro Snippets

WeWork Logo
  • WeWork has agreed to merge with a “blank check” company to go public, it said in a statement today. The deal with the BowX Acquisition SPAC will provide the company with approximately $1.3B of cash and valuation of $9B. This is a far cry from the laughable $47 billion value once attached to it. (Investopedia)
Ever Clear - Suez Canal
  • The fallout from the Suez Canal blockage rippled through the energy industry on Thursday. The cost of renting tankers are rising and shippers are plotting alternative routes for supplies of oil and gas. Shipping broker Braemar estimates the equivalent of two million barrels a day of crude and refined oil products are currently stuck at the canal (2% of global oil consumption). Some importers may send goods via airfreight or on ships sailing around Africa – delaying deliveries up to two weeks. Shipping operators polled by The Wall Street Journal value the cargo stranded at the canal at $12 billion. (WSJ)
  • New York State lawmakers have reached a deal to legalize recreational marijuana. This makes New York the 15th state to make this change. The legislation will levy a 13% sales tax that will be divided into state and local tax revenue. (Investopedia)
  • Intel announced a $20 billion investment to build two new chip factories in Arizona amid a global semiconductor shortage. CEO Pat Gelsinger unveiled a strategy that will see it provide foundry capacity to third-party customers. A welcomed development for the U.S. manufacturing base.
Paul J. McCarthy III

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Paul J. McCarthy, III

President – Kisco Capital

Paul McCarthy

Mr. McCarthy is the President and founder of Kisco Capital.