- The Federal Reserve is currently purchasing $120 billion of bonds per month
- The U.S. Leading Economic Index increased by 1.6% in April, hitting a new peak
- Q1 2021 S&P 500 company earnings are expected to have grown 51.9% over the prior year
Top Three Market Headlines
Fed Officials Raise the Prospect of Tapering: According to minutes released last week of the Federal Reserve’s April 27-28 meeting, the topic of reducing the pace of the central bank’s asset purchases was raised for the first time since the Fed adopted its current accommodative monetary policy. Presently, the Fed is purchasing $120 billion of bonds per month while maintaining a federal funds rate target range of 0 to ¼ percent. With indicators of economic activity strengthening, however, some officials suggested it might be appropriate for the Fed to discuss in upcoming meetings a plan to pare back, or “taper”, its bond purchases if the economy continues to make rapid progress toward the Fed’s goals of a 2% average inflation rate along with full employment.
Leading Indicators Surpass Pre-Pandemic Peak: The Conference Board’s U.S. Leading Economic Index (LEI), a series of 10 leading, coincident, and lagging indicators designed to reflect economic cycle turning points, increased by 1.6% in April to 113.3. Following strong growth in March as well, the LEI has now reached a new peak, fully recovering from its COVID-19 contraction. According to the Conference Board, the index’s latest reading indicates the economy’s recovery should continue. The Conference Board has set an expectation of real annualized GDP growth of 8-9% in the second quarter of 2021, with full-year growth of 6.4%.
Corporate Earnings Rebound at a Hearty Pace: Demonstrating the acceleration of the U.S. economy’s post-pandemic recovery, corporate earnings in early 2021 have rebounded at a rapid clip that has far exceeded original estimates. With most Q1 corporate earnings reports now in the books, the year-over-year blended EPS growth rate for S&P 500 companies (combining actual results with analyst estimates for the few companies yet to report) stands at a robust 51.9% as of May 21, more than double the estimate of 23.7% as of March 31. Going forward, analysts presently project double-digit earnings growth for S&P 500 companies for each of the remaining quarters of 2021, producing a full-year growth rate of 33.7%.