Stocks Surge to Record Highs as Investors Target Biden’s Plans

Stocks Surge to Record Highs as Investors Target Biden’s Plans

 Published: May 3rd, 2021

 Stocks dashed to set new record levels after a dismal performance during the week that ended on Saturday, May 1. The impressive performance was prompted by a batch of stronger-than-expected earnings results of major companies and a range of proposals from President Joe Biden’s administration seeking to expand spending on infrastructure, child support, student loans, and support for families.

The S&P 500 index shot to a record high, surpassing 4,200 points just as the markets opened on Friday, April 30. Similarly, the Dow Jones Industrial Average scrapped back all its intraday losses to go higher by more than 200 points. The Dow’s rise came even as shares of Merck, a major component of the index, recorded a sharp decline after failing to live to this quarter’s earnings expectations. The Nasdaq Composite also advanced.

Investors were drawn to President Biden’s address to a joint session of Congress on Wednesday, April 28. During the address, the president declared that America is back and moving once again. The message is a candid reassurance and is particularly comforting coming now, especially in the heels of a pandemic that has ravaged the U.S. and global economy and killed millions of people.

The address excited traders and served as a platform for the new administration to promote its $2 trillion infrastructure plan and officially introduce the $1.8 trillion proposal to fund child support, assist with student loans, and offer respite for families across America. The president’s plan will be funded in part by increasing taxes on wealthy Americans.

The Earnings Season is Surpassing Expectations

The surging stocks are propelled by an earnings season exceeding almost all expectations without any signs of receding. Shares of Apple increased in value after the company released its fiscal Q2 results that easily surpassed projections. The company’s sales came in better than expected for Mac and iPad. The iPhone sales also skyrocketed in the months after the launch of the iPhone 12, a 5G-enabled device.

Shares of Facebook also advanced after Q2 results indicated an increase in both users and sales. Facebook customers’ advertising spending is increasing as the pandemic fades. The strong results released by the mega-cap tech brands add to the tyranny of companies that have so far surpassed their expectations this earnings season. The rising economic activity coupled with improving consumer confidence is responsible for the upshot in corporate profits.

On Wednesday, April 28, almost half of the companies that make up the S&P 500 index’s market cap reported their earnings results. Almost 85% of the companies had surpassed their expectations, and by an impressive average of 21.7%. A good chunk of the remaining companies, including Amazon, will declare their earnings on Thursday, May 6.

Aside from the good results, the latest monetary policy statement from the Federal Reserve offered the investors another shot of encouragement. The statement included no major changes in policy. However, it did highlight some recent improvements in the general condition of the U.S. economy.

Sit Back and Watch the Economy Unfold

While addressing the press on Wednesday, April 28, the Fed Chair Jerome Powell played down his message that the Federal Reserve is actively scouting for substantial progress towards price stability and maximum employment in the coming months. Instead, he reiterated that these criteria should ideally be met by real economic results rather than mere projections.

According to Charlie Ripley, a senior investment strategist at Allianz Investment Management, the Federal Reserve presided over a policy meeting that proposed no major monetary policy change. He said that the meeting was an indication that market participants should sit back and watch the economic recovery unfold.

However, he added that the Fed did acknowledge the increase in the rate of economic recovery. Ripley said that even though the bank did not signal any policy changes at this point, it is difficult to discredit their position on inflation, especially considering the slow speed of job creation.

The analyst said that if the economy continues to recover at the current pace, the central bank might have to move from its peak policy accommodation.

Aside from stocks, the combination of the above factors pushed crude oil prices up by 1.72% to $64.96 per barrel. The 10-year U.S. Treasury bond also gained two basis points to yield 1.6400%. However, gold receded slightly, contracting by 0.01% to exchange at $1,773.80 per ounce.

Not Just a Basket of Gainers

The news coming from Washington is full of hope. However, not all companies are affected the same way. Lyft and Uber dropped during intraday trading on Thursday, April 29, after U.S. Labor Secretary Marty Walsh supported classifying gig workers as employees. The title will bestow more benefits upon the workers but heightens costs for gig economy firms. Uber’s shares shrank by 7%, while Lyft’s stocks dipped by more than 10%.

Walsh said his department would spend more time on the issue of classification. He said in most cases, gig workers should be categorized as employees. The classification is necessary to harmonize how workers are treated. The secretary said in some cases, gig workers are treated respectfully, while in some cases, not so much, yet it should be consistent across the board.

By 2017, the U.S. had about 55 million people classified as gig workers.

In other news, the U.S. GDP increased by 6.4% quarter-on-quarter. This is the seasonal adjusted annualized rate for January through March 2021. According to the Bureau of Economic Analysis, the figure marks an acceleration from 4.3% annualized growth from Q4 2020. However, it is slightly less than the 6.7% growth that economists had predicted.

Personal consumption, the single biggest contributor to the country’s economic activity, shot up by 10.7%. Analysts suggest that the increase is due to the two stimulus checks mailed to Americans. Easing social distancing restrictions and allowing more people to venture out and spend might have also helped.

The increase shot markedly from 2.3% in Q4 2020. It represents the second-fastest growth rate in about five decades.

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