INVESTORS WATCHING CLOSELY AS EARNINGS SEASON APPROACHES

April 14, 2021

The markets are a bit overbought, so look for a modest pullback over the next week or so. However, the HCM-BuyLine® is strong, so any pullback should be seen as a buying opportunity. The bigger, more important milestone in the coming weeks is 1Q2021 earnings season. In some ways, investors view it as officially starting with banks, which report today. This is the first real quarter we can see operating leverage at work. 

S&P 500

Topline revenues are forecasted to rise 6.5% YoY, the first real increase in revenues since the pandemic started.  Granted, 1Q2020 is an "easy comparison" because there were only two months of business during that quarter, and March 2020 was a lost month. However, companies will also talk about visibility and re-opening plans, so there will be a lot of useful information coming over the next few weeks. 

Tesla

Tesla (TSLA) was yesterday’s biggest percentage gainer in the S&P 500 and the Nasdaq 100. It was also the day's strongest stock in the Consumer Discretionary SPDR, which is itself hitting a new record. And its chart is looking stronger. Tesla rose above its 50-day moving average and is trading at its highest level since the late February/March pullback, having retraced a little over 38% of its rally from March 2020. That is a normal retracement of an existing uptrend, and often acts as a support level during a downside correction. And yes, we have been buying TSLA in our mutual fund starting about 6 weeks ago.

The Consumer Price Index (CPI) increased 0.6% in March, the most since August 2012, and above the consensus of 0.5%. It was led by a 5.0% jump in energy prices, the most since September 2017, while food prices were up a small 0.1%. Core CPI, which excludes energy and food, increased 0.3%, also above the consensus of 0.2%.

Most core CPI components increased. Shelter was up 0.3%, led by a 3.8% rebound in lodging away from home. It was the biggest rise in this component since October 2005, reflecting the gradual reopening of the economy and an increase in travel and hotel stay. Car insurance prices rose 3.3%, its third consecutive gain. Used car and truck prices rose 0.5%, but new vehicle prices were flat. There were notable price gains in household furnishings and operations, recreation, and personal care. On the flip side, there were price declines in apparel and education.

On a y/y basis, CPI increased 2.6%, the most since August 2018, while core CPI rose a more moderate 1.6%. Both reflect the early stages of the pandemic that depressed prices last spring. Due to the base effect in calculating annual price growth, headline CPI inflation will approach 3.5% in the next few months, while core inflation will exceed 2.0%. Although this effect should be transitory, we do expect the reopening of the economy, a strong recovery, and ongoing shortages of raw materials and products to lead to moderately higher CPI inflation of about 2.2% at the end of this year, compared to 1.4% last year. 



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