Stocks rallied Friday to finish the week mixed, with Russell 2000 the lone advancer of the major indices.
Stocks were swayed this week by improving economic conditions, mixed earnings, rising global Covid cases, and a proposed increase to capital gains taxes which sent stocks 1% lower over the course of an hour Thursday afternoon.
President Biden announced Thursday plans to increase the capital gains tax to 39.6% from 20% for individuals earning $1 million of more on Thursday. The reaction by the market was swift and bearish, but, as the initial move was mostly erased on Friday, it seems the news was more of an excuse for some profit taking than bearish disdain for the proposal.
Improving Economy
During this week, we hit some important milestones that paint a picture of an improving economy. Namely, Initial Unemployment Claims which reached their lowest level since the pandemic began in March 2020. Claims fell last week to 547,000, with consensus estimates for 600,000, reaching the lowest levels since the week of March 21, 2020.
One important thing to take away from this is how far we still have to go. In January 2020, jobless claims were 204,000 for the week ended January 11, 2020. So while we have been trending in the right direction, new claims remain pretty elevated compared to pre-pandemic levels.
Home sales also pointed to a quickening recovery, soaring 20.7% month over month in March to 1.021 million new homes sold. The annual rate of increase for March was a massive 66.8% which is the highest annual growth rate since August 2006. However, the base effect is strong with this one, having now overlapped with a depressed March 2020.
The 20.7% month-over-month growth was an important rebound from February. The March figures comfortably beat consensus estimates for 912,000 home sales and represent a strong rebound from February’s upwardly revised 846,000 homes sold.
The new home sales came on the heels of Thursday’s existing home sales report which continue to remain near all time lows as the number of homes on the market remains very low.
Prices for new and existing homes continue to climb, leaving economists worried about housing affordability going forward.
Mixed Earnings
Reactions to earnings throughout the week were mixed. Netflix (NFLX) was the biggest one, which appeared ok at first glance, but fell flat upon inspection. Netflix dropped 7.4% after missing subscriber estimates and releasing underwhelming guidance. The company beat earnings estimates, but the market seems to care more about subscriber growth.
IBM (IBM) reported strong earnings this quarter, completing its first year with Arvind Krishna as CEO in style, as the CEO increases the company’s focus on hybrid cloud and AI capabilities. A strong performance in the high-margin cloud business helped IBM comfortably beat earnings by $0.15 per share.
All told, markets ended mostly lower. The Russell 2000 was the only major index to post gains, adding 0.41% this week, while the S&P 500 declined 0.13%. The Dow was the biggest loser, falling 0.46%, while the Nasdaq also fell, losing 0.25%.