The Calm Before the…

Stocks finished with little change in an up-and-down week amid some of the lightest daily trading volumes of 2021. Small-caps performed slightly better than large-caps, and the technology-heavy Nasdaq Composite Index modestly lagged the broad market.

During the week, investors exhibited some fear related to news that President Joe Biden plans to propose nearly doubling the long-term capital gains tax rate for taxpayers who earn more than $1 million a year. The tax hike would be used to fund some of the measures in Biden’s American Families Plan, which could be formally proposed next week and may involve free community college tuition, child-care subsidies, and other health- or education-related spending. Of course, negotiations in Congress will likely make any final tax increase lower than what Biden initially proposes, and the markets seemed to share that realization by the week’s end.

Quarterly earnings season was in full swing, and the week’s earnings reports provided more evidence that the economy is gradually transitioning to a post-pandemic environment. Netflix reported that its number of new subscribers declined steeply in the first quarter and said that it expects to add even fewer subscribers in the second quarter as consumers spend less time at home. Major airlines, including United, American, and Southwest, posted another quarter of weak earnings but said that they are seeing a meaningful pickup in travel demand as more people are vaccinated and become comfortable traveling.

Initial unemployment claims fell to the lowest level since the onset of the pandemic in March 2020, according to weekly data from the Department of Labor. The report showed that the labor market is continuing to improve, although weekly jobless claims remain well above pre-pandemic averages. The National Association of Realtors reported that existing home sales fell 3.7% in March from February amid a limited supply of houses on the market. The limited supply and strong demand pushed the median sales price to a record high in March.

U.S. Treasury yields modestly decreased, as the Biden capital gains tax increase news supported demand for less risky assets.  In the corporate bond market, U.S. banks continued to issue new debt early in the week, and deals were generally well received.

Momentum continues to keep things moving, and the light at the end of the “COVID Tunnel” may actually be in sight.  That said, we are inching closer to several perceived “ceilings” in the various indices, which could bring with them some profit taking by technical investors.  A light week of trading could mean a storm is brewing, or it could mean that there just wasn’t enough news to drive trading.  As the market continues to climb, so does anxiety for many.  Attempting to time the potential storm ahead is a fool’s errand, so we remain committed to using our talents to prepare.  We remind you to join us in trusting in the Lord, with all our hearts and not leaning on our own understanding (Proverbs 4:6).  He’ll be with you (as will we), as we venture forward.

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

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