Most first-quarter corporate earnings reports have been meeting or beating expectations and this has raised the confidence that equity valuations are not excessive. The S&P 500 Index is trading at a reasonable 22x Price to Earnings multiple, but earnings estimates are being actively raised by analysts who see stronger revenue and profit growth in the second half of 2021. Financial, industrial, energy and basic materials companies are showing considerable revenue acceleration, expense control and order backlogs. Earnings from Apple, Alphabet, Amazon, Facebook, Microsoft and Qualcomm were all above expectation and guidance was strong for the year ahead. Both growth and value stocks are rising, but the pervasive microchip shortage is constraining production at some cyclical companies like Caterpillar and Ford. Small Cap and Mid Cap stocks continue to lead the market, while the service sector, especially travel and leisure, is gradually recovering.
The U.S. Federal Reserve remains resolute in its bond purchases and bond yields, which were rising in March but have now trended lower. With the 10-Year U.S. Treasury bonds yielding 1.63% after rising to as much as 1.75% earlier this year, bond investors may be overly complacent. In the past 12 months, energy prices are up 65%, the Commodities Research Bureau Raw Materials Spot Index is up 39%, and the U.S. Treasury has injected $5.9 trillion in stimulus money into the economy. Inflation is expected to rise for the next few months, although the Federal Reserve has indicated it believes this will be transitory and temporary.
|S&P 500 Index||11.3%|
|S&P Mid Cap 400 Index||18.2%|
|S&P Small Cap Index||21.8%|
MSCI All World Cap Index