Another Rapid Rundown

This was no slow week in America. It was stacked with many Market moving events. Stocks rallied in April on the back of strong earnings, a surging Economy, more anticipated fiscal spending, and a continued backstop from the Fed. The Market loves it. This was the busiest week for Earnings Season, which brings a report card for Corporate America, 4 times a year. Over 1/3 of the S&P 500 companies reported Q1 results this week. They’ve been quite strong. The recovery seems to be gaining momentum in America. Q1 was the fastest-growing US Economy since the Reagan era. President Biden marked his first 100 days and addressed a Joint Session in Congress for the first time. The group was small, but the proposals were large. The Fed doubled down on its support for the Economy, maintaining interest rates near zero and asset purchases well in excess of zero. The Fed keeps flooding the financial system. It’s such a Bullish backdrop for stocks. At fresh, all-time highs, the Stock Market already reflects it. I’ll touch on all of these topics below in another version of my rapid rundowns. The big question is whether this is as good as it gets. That’s impossible to know. But since so much has been priced forward with expectations, it’s quite possibly true.

The S&P set another record high this week, following robust economic reports. The first snapshot of first-quarter GDP showed an expansion of 6.4%, comfortably beating estimates of a 6.1% annualized rate. Stimulus checks landed in bank accounts and people’s pockets. Then they went back into the system. The American people and the government spent heavily on retail, vaccines and business aid. That brought the world’s largest economy within 1% of its peak reached in late 2019, just before the Covid pandemic shocked the system. 553,000 new weekly jobless claims were filed in its latest report. That might seem like a big number, but it marked another pandemic low. The recovery is real. The reopening of America meets a major milestone this weekend. Disneyland is back, opening its gates for the first time since the pandemic began over a year ago.

Closed since March 2020, Disney’s California theme parks are getting ready for their grand reopening. Things will look a little different with guests required to wear masks, and Mickey Mouse and his crew will maintain a social distance. Technological advancements will greet guests too. Visitors are encouraged to use cashless pay options, through the use of Disney MagicBands or their smartphones. Disneyland is rolling out a mobile ordering system to buy food. Virtual ride queues will help maintain social distancing. An online reservation system will assist with crowd control. “Genie,” a new digital offering from Disney, will additionally optimize park trips for guests by creating a clear itinerary of what they want to do and eat during their stay. A really positive development was the Disney company bringing back over 10,000 of its cast members that were furloughed or laid off. Initially, Disneyland and California Adventures will be restricted to California residents. It’s expected to expand over the Summer.

This week marked President Biden’s first 100 days. He addressed a Joint Session of Congress on Wednesday, in front of a smaller, socially distanced crowd. Big plans were proposed. A lot transpired during this initial period. The massive and historic Covid stimulus bill injected Trillions into the economic system. The Market has certainly responded. The S&P was up 24% during Biden’s first 100 days. That’s the best performance for the Stock Market during a President’s first 100 days in decades. The next 100 days are going to get much tougher for the President. Running as a moderate, “Transitional” candidate, President Biden is now being described as “Transformational.” The Left seems pleased. The Right seems not. The American people simply want stuff done. Infrastructure was supposed to be an easy, bipartisan win. It’s proving not to be. The honeymoon was short. Politicians keep politicking. Washington remains sorely divided.

The Fed made it clear, it is still not thinking about thinking about raising interest rates. Fed Chair Powell reiterated it’s still too early to talk about tapering. That means its asset purchases will continue at the current rate. The Market seems totally ok with that. The Fed Chair pointed out that the economic recovery remains uneven. Small businesses and service-oriented workers, like restaurants, hotels and travel-related industries, still need help. Employment is still over 8 Million below the pre-pandemic level and the participation rate remains depressed. There are a lot of people taking unemployment, getting paid the same if not more to stay home than work. That’s not a sustainable situation. Inflationary pressures have been showing up and presenting challenges. The Fed is not concerned. Chair Powell repeatedly stressed that the Fed expects pricing pressures to be temporary; In his word, transitory. The Market thinks otherwise. The 10-Year Treasury Yield rose this week. 2% looks likely later this year.

Fed Chair Jay Powell painted a rosy picture of the US economy on Wednesday, but showed no sign that the central bank would change monetary policy anytime soon due to the “uneven and far from complete” recovery. It’s like Market Magic. Despite all of the strong economic activity and an accelerating reopening of America, the Fed is going to maintain its strong support. That means the overnight rate is staying near zero and the Fed is going to keep buying Bonds. Market Liquidity. The Fed bought Trillions of Dollars in long-term securities. Treasury and mortgage-backed securities markets became dysfunctional after the outbreak of Covid, and the Fed’s actions aimed to restore smooth market functioning so that credit could continue to flow. Every month, the Fed is buying $80 Billion of Treasuries and $40 Billion in residential and commercial mortgage-backed securities until further notice. At one point, the Fed was buying Corporate Bonds and Exchange Traded Funds. The Fed’s Balance sheet grew from $3.9 Trillion in March of 2020 to $7.8 Trillion today. Having the Fed be an active buyer in the Market provides liquidity and a comfortable backdrop for investors. It also promotes some excess speculation as an unintended consequence. The speculative fever seems to have burned off for now, as higher yields choked off some of the excessive enthusiasm. The last time the Fed cut back on its asset purchases, it triggered a “taper tantrum” and a Market sell-off. That was in 2013. Fed officials have made it clear, they want to avoid that this time.

The Tech Titans have returned and proved their dominance in April. Their stocks have gone mostly sideways for months, having hit new highs last August. They were dominant Market leaders for most of 2020, representing ¼ of the S&P 500 index, yet over 60% of the gains at one point last year. The broadening of the rally brought greater participation and more cyclical and speculative stocks responding to the economic recovery and joining the Market party. The Tech Titans took a breather. That correction in time, digesting the massive moves of 2020, appears to be ending. They’ve been super strong of late, heading into Earnings Season. Their report cards were stellar.

Amazon just flexed its muscles, big time. Amazon grew its revenue 44% in Q1, generating over $100 Billion. This is just a massive number; $100 Billion… in just 3 months! Its advertisement business surged nearly 80%. The trend is expected to continue. It forecast Q2 revenues up to $116 Billion and tripled its profits to $8 Billion. Almost half of Amazon’s operating income came from AWS, its cloud services division, which surged from the work-from-home trends. Prime Video’s streaming hours were up over 70% on the year. Amazon also announced its Prime Day will take place in June. The rumored stock split did not happen. The stock hit a new, all-time high after hours anyway.

Apple had a monster quarter too, reporting the fastest revenue growth in a decade. Sales grew over 50% from a year ago to nearly $90 Billion; Another really big number. Apple reported double-digit growth in every single one of its product categories, while the flagship iPhone was up 65% from last year. Mac sales increased 70% and iPad sales surged a whopping 79% from 2020. These trends are expected to continue, but at a much slower rate as things begin to normalize in 2021. Apple also raised its dividend and announced a large stock buyback program. The stock sold-off on the news after a big run for the month in anticipation.

Google crushed it too. Google’s parent company, Alphabet, reported explosive earn­ings which re­flect ad­ver­tiser an­tic­i­pa­tion that the re­open­ing of America will lead to a gusher of economic and business activity. That’s really good for Google. But the company did quite well last year too. The pan­demic pro­vided a jolt to Al­pha­bet’s ad­ver­tis­ing busi­ness as more people shifted toward the virtual world in a stay-at-home year. Google search was under broad use with people trying to find things like take­out meals and gro­cery-delivery options. They also spent a lot of time on YouTube, a prized Alphabet asset. Corporate America re­sponded by shifting advertising Dollars from print and in-store pro­mo­tions to target cus­tomers across the Google uni­verse. The stock has responded.

Microsoft kicked the Earnings Party off earlier in the week with a really strong report. The Software Giant generated $40 Billion in revenue and $15 Billion in profit. It was the fastest revenue growth since 2018. Microsoft’s cloud-computing product, Azure, grew sales 50% in the first 3 months of the year. Corporate customers accelerated their digital transformation and cloud strategy with Microsoft by 6 to 12 months as the prospects of a semi-remote workforce for the foreseeable future seems here to stay. That means big business is spending a lot on systems and software subscriptions, and Microsoft is a chief beneficiary of these irreversible trends, today and tomorrow.

Incredibly, these 4 Tech companies, the largest in the world, are all growing at unprecedented rates for their size and scale. The success comes from multiple segments: Advertising, Subscriptions, Devices and Commerce. These are paths for success with a very long runway. Their stocks possess unique characteristics for both offense and defense. They resemble more than companies; Dynasties seem more accurate. The Tech Titans are they.

So that’s a wrap on this rapid rundown. My fingers need stretching after banging out this copy. What makes me proud to say, as another milestone in the reopening of America, our Bedell Frazier Team is getting together as a group this afternoon for the first time since March of 2020. We’ll be hiking and playing cornhole outdoors with food and beverages, building memories with love and laughter. It’s been a 14-month stretch that we’ve never before seen. But it made us better. We’re faster. We’re more efficient. We’re more productive. And we’re 1 year wiser for it. But the virtual world has nothing on in-person engagement. Culture is everything. This is a relationship business and we’re relationship people. We can’t wait until we see you again.

Have a nice weekend. We’ll be back, dark and early on Monday.


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