Stocks finished mixed on Friday — the S&P 500 and Dow finished in the red while the Nasdaq Composite closed at a record high — although all three posted a gain for the week. The Dow registered its fifth positive week in six while the S&P posted its third positive week in four. The Nasdaq advanced 4.19% last week for its best week since November and fifth positive week in six as shares of Big Tech names pushed the index to a new all-time high.
The move higher came as President Joe Biden tries to push through a $1.9 trillion stimulus program that many congressional Republicans oppose. The fiscal aid includes direct checks to millions of Americans, aid to state and local governments, funding for Covid vaccines and testing, a boost to the minimum wage and enhanced unemployment benefits, among other things.
Lindsey Bell, chief investment strategist for Ally Invest, noted any additional stimulus could lead to a surge in inflation.
“Right now, watch for signs of inflation as a temporary or more long-term trend. If it’s just a quick shock, we may see some market weakness without any major Fed action,” she noted. “On the other hand, persistently high inflation may force the Fed to consider raising rates and pulling back their market support.”
In an inflationary environment, Bell said investors should favor the consumer staples, energy and financials sectors. She added that real estate and gold are among the other assets that can help hedge against inflation.
This coming week 13 Dow components and 111 S&P 500 companies are set to report earnings. Among the quarterly reports on deck include those from Apple, Microsoft, Netflix, Tesla, McDonald’s, Honeywell, Caterpillar and Boeing.
According to data from Bank of America, of the S&P 500 components that have already reported earnings, 73% have beaten on both sales and EPS. The firm said this is tracking similar to last quarter when the number of companies beating hit a record.
The number of coronavirus cases continues to tick up in the U.S. and abroad, but many economists are forecasting a return to growth later this year.
“We continue to expect that a reduction in virus risk due to mass vaccination coupled with fiscal support for consumer spending will lead to a mid-year consumption boom and very strong growth in 2021,” Jan Hatzius, chief economist at Goldman Sachs, said in a note to clients over the weekend. “We currently forecast GDP growth of +6.6% on a full-year basis, 2½pp above consensus,” he added.
However, the firm noted that while risks like insufficient fiscal aid look now look less likely, other risks remain. Hatzius cited consumers remaining more cautious than expected as well as the evolution of a vaccine-resistant virus strain as potential futures headwinds for the market.
“The virus is basically telling us that it’s going to continue to change and we’ve got to be ready for it,” Dr. Vivek Murthy told ABC News’ “This Week.”
“We’ve got to number one, do much better genomic surveillance, so we can identify variants when they arise and that means we’ve got to double down on public health measures like masking and avoiding indoor gatherings,” he added.
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