Pride Before the Fall?

The holiday-shortened week capped off a strong first quarter for stocks, with the S&P 500 crossing the 4,000-point mark for the first time ever. Among the highlights were consumer confidence increasing to its highest level since the onset of the pandemic and manufacturing activity expanding at the fastest pace since 1983. Within all of the sectors, growth stocks widely outperformed value shares for the first time since January. That was welcome news for our portfolios!

Things are certainly looking good on many fronts. On Tuesday, The Conference Board announced that its index of consumer confidence had registered its biggest gain in nearly 18 years, while its gauge of consumer expectations had reached its best level since the summer of 2019. Regional manufacturing indexes also surprised strongly on the upside, while the Institute for Supply Management’s gauge of factory activity hit its highest level since December 1983.

All of that said, let’s not lose sight of the rough seas on the horizon.  Proverbs 16:18 reminds us that “Pride goes before destruction, a haughty spirit before a fall.”  We continue to anticipate a correction, and we are actively thinking about the best ways to both minimize loss and capture returns, regardless of when and how any market fluctuations occur.  We remain humbled and honored by the opportunity to steward blessings for so many, and we pray that the Lord’s will includes our continued discernment.

One impetus for rough seas could be gainful employment, as the effect from stimulus checks wears off.  Payroll processor ADP’s tally of private-sector job gains in March missed consensus forecasts by a bit, when it was released Wednesday and, on Thursday, the Labor Department announced that weekly jobless claims had increased to 719,000, from a downwardly revised (and pandemic-era low) of 658,000 the week before.

The jobless claims data seemed to drive a decline in the yield on the benchmark 10-year U.S. Treasury note at the end of the trading week (bond prices and yields move in opposite directions, while demand for the safety of bonds and bond prices move in similar directions).  Municipal bonds continued to outperform Treasuries for much of the week, as flows into municipal bond funds reached a record high, according to Lipper data.

Although the jobless claims and correlated bond price movement have the makings of a downward trend in the market, the high-yield market (which is more closely correlated to stock performance) was also stronger, as the projected positive economic impact of the Biden administration’s infrastructure plan seemed to offset the inflation fears that have been weighing on broader risk markets recently.

The waters are murky and the horizon unsettled, but our team remains steady at the helm.  There are still significant opportunities, today, and there appear to be ample lanes for continued growth ahead.  We’ve got our eyes peeled!

Sources: Yahoo Finance, Reuters.com, and JP Morgan Market Insights

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