We remain optimistic on our outlook for the economy and stocks with last week’s economic readings showing further improvement, which helped push the S&P 500 stock index to a fresh all-time high.
Optimistic business surveys, higher consumer sentiment, falling jobless claims, and an accelerating vaccine rollout are all suggesting improving economic health will support stocks in the coming months.
Business Surveys Show Recovery Gaining Strength
We got the first look at March’s business surveys last week and they continue to paint a picture of an economy gaining strength. The Markit flash Services PMI (a preliminary gauge of March’s service economy) reached its highest level since
July 2014, as services activity continues to improve amid more fiscal stimulus, more vaccinations, looser COVID restrictions, and returning pent-up demand from customers. New orders rose sharply at the fastest pace in nearly three years, including a renewed
expansion in export orders. Employment grew at the quickest rate this year.
The flash Manufacturing PMI (a preliminary gauge of March’s manufacturing sector) rose to its second best level since April 2010, amid a surge in client demand. New orders jumped at the fastest pace since June 2014, while export orders posted a solid increase. Order backlogs accumulated at the fastest rate since data started in 2007, largely reflecting severe shortages and supplier delays. Indeed, vendor performance continued to deteriorate, with supplier deliveries slowing the most on record (since May 2007).
Importantly, business confidence remained historically upbeat in March, as firms expect output to rise over the coming year amid stronger new order inflows and hopes of an end to the pandemic.
Both services and manufacturing producers were increasingly unable to keep pace with demand, due mainly to supply chain disruptions and delays (which will be aggravated by the Suez Canal closure). While this has led to surging prices, we view this as temporary.
Jobless Claims Move Lower
Initial claims for unemployment insurance dropped 97,000 last week to 684,000, the lowest level in a year, with the four-week
moving average also at the lowest level in a year. While the level of initial claims is still significantly higher than pre-pandemic, the trend improvement suggests fewer layoffs and a gradual healing of the labor market. We expect the labor market to
see a significant improvement as travel, leisure, and restaurants return to normal in the coming months as the pandemic fades with the accelerating vaccine rollout.
Vaccine Rollout Acceleration Continues
With three vaccines
now approved, the U.S. vaccine rollout is accelerating. We administered an average of 2.7 million doses a day last week with 15.5% of the population fully vaccinated and 28.2% of the population having received at least one shot, according to data from
the Centers for Disease Control and Prevention. With vaccine production up significantly (expected to reach 132 million doses in March compared to only 48 million in February), we see further acceleration in the rollout which is critical for the successful
Consumer Sentiment Jumps
The University of Michigan Consumer Sentiment Index rose to the highest level in a year, and above the consensus estimate. The index increase was the most since October 2006,
as renewed income support from the American Rescue Plan and better-than-anticipated vaccination rate boosted consumer attitudes. Both current conditions and expectations improved, with the latter moving up by the most since April 2009. This increase in
sentiment is important, as it suggests faster consumer spending growth in the near-term—supported by pent-up demand and a very high savings rate.
All of this supports our favorable outlook for the economy and markets as we move through 2021 and we continue to see cyclical sectors (Energy, Materials, Industrials, and Financials) as well positioned.
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