The Dow (+1.2%), NASDAQ (+1.1%), and S&P 500 (+1.4%) all surged last week, as the Dow and S&P 500 climbed for the fourth straight week and continued to set record highs. Taxable bonds were also up about 0.3% and tax free municipal bonds were up about 0.5%. This was one of those nice weeks when all indices were up, as they all responded to a decrease in the Treasury bond interest rates that have risen rapidly since last August, and especially the last two months.
Positive economic data and corporate earnings have fueled the recent surge in stocks, as the report on March retail sales were the strongest growth since May 2020. Additionally, last week marked the first full week of corporate earnings reports which were also stronger than expected. According to one economist last week, “The demand for [certain sectors of stocks] should continue as the vaccines take hold and earnings potentially come in higher than expected”.
This economic data and corporate earnings reports have been demonstrating the growth we anticipated, which certainly bodes well for the stock markets. The potential headwinds for continued growth would be a continued and sharp rise in interest rates that could arise from higher inflation, and a potential hike in the corporate tax rate. With regard to the corporate tax rate, there appears to be a mixed bag of expectations, as some believe this will have a substantial impact on corporate earnings, while others believe the effects may be minimal. Nobody ever said that predicting these impacts would be easy. Besides, there are way too many other factors that could enhance or impede the growth of corporate earnings and stock prices. Thus, only time will tell.