Macro Perspective

The operator of the largest gasoline pipeline in the United States was subject to a cyber hack over the weekend and the firm promptly shut off its pipeline operations. As of this writing, the pipeline remained offline as a precaution; we will continue to monitor the situation as the facts are reported.

Friday’s jobs report showed the U.S. economy added just 266,000 jobs in April, far below consensus estimates of 1 million. The unemployment rate moved to 6.1% as notable job losses in manufacturing partially offset gains in service industries like leisure and hospitality. In our view, the report suggests that while vaccination progress is ongoing, a broader return to the labor force is critical to ensuring a durable economic recovery.

Equity Markets

On Friday, the S&P 1500® hit a new record high, led by value stocks, and the Energy and Materials sectors in particular. While the Materials sector reached a new all-time high on Friday, the Energy sector is still nearly 50% off its 2014 record level.

The global Materials sector has been supported by rising costs of basic commodities, including copper, which also reached an all-time high on Friday. We believe rising prices are due to short-term supply issues as the global economy reopens from the pandemic, rather than the start of a new demand-driven commodity super cycle.

The MSCI World ex USA Index outperformed domestic markets led by cyclicals, with strength from Financials, Energy and Materials. In a week impacted by three-day holidays in both China and South Korea, the MSCI Emerging Markets Index trailed its developed market peers. The decline was primarily in internet-based companies and semiconductor manufacturers, negatively impacted by the ongoing chip supply shortage and speeches from U.S. policymakers supporting the build-out of domestic-based semiconductor manufacturing.

Investor conferences in the week ahead that we will be following include the annual Sohn Investment Conference, the Goldman Sachs Industrials and Materials Conference and the Bank of America Healthcare conference.

Fixed Income Markets

The eurodollar futures market had been trading as if a near-term rate hike was imminent, however that quickly reversed course after the disappointing jobs report. The market is more in alignment with PNC Economics’s expectations of a rate hike in late 2023.

Table of the Week

First-quarter earnings season is winding down, with nearly 90% of S&P 500® constituents having reported. The blended earnings growth rate (actual growth rate combined with consensus estimates) is 49.0%, a significant improvement from the 45.8% growth rate reported last week.

The blended earnings growth rate improved over all sectors with the exception of Utilities. Consumer Discretionary and Energy showed the strongest weekly growth improvement, with strong results from automobile and oil and gas industries. Reflecting a mixed read of the reopening of the economy, resiliency of customer engagement and lower-than-expected churn all drove above-consensus earnings results in the entertainment industry.

Second-quarter earnings revisions have increased to 59.5% from 52.4% at the end of the first quarter. The consensus estimate for earnings growth for the 2021 calendar year has increased to 32.9%, which pushed 2022 estimates down to 11.9%.

View Table of the Week on the full report