Floating Higher on a Sea of Liquidity
Macro Perspectives: Tue 6 Apr 2021
The quarter ended last week. If we look across markets, practically everything was up big on the quarter.
Lumber was +41% in the quarter, Lean hogs +50%, Crude oil +25%, Copper +14%, European stocks +10%, Japanese stocks +8%, U.S. stocks (S&P 500) +7%.
The expectation for the quarter was for a new administration to come in and pour even more gasoline on a fire of global liquidity and that's precisely what has happened.
With that, we've laid out the inflation tale and it’s reflection in asset prices has been very clear. It hasn't been as clear, and widespread, yet, in everyday consumer prices.
Looking back on Q1, we had an economy that is estimated by the Atlanta Fed to have grown at a 6% annual rate.
With that, the banks will kick off earnings season next week and we will begin to see what 6% economic growth looks like in corporate earnings. Those earnings will be compared against a very low base of Q1 2020 - the quarter that included the onset of the pandemic and economic shutdown.
Spoiler: The earnings growth is going to be huge.
On a related note, even though the estimates on earnings have been ratcheted up by both Wall Street and corporate America, history tells us that earnings estimates are set to be beaten. We should expect to see big positive surprises from the first quarter. That will all be more fuel for stocks.
This comes in the month of April, which historically is a very good month for stocks (up 15 out of the past 15 years). Keep in mind, this first quarter includes just a small fraction disbursed of the latest $1.9 trillion, with more of this money hitting in the coming quarter, Q2 growth (in GDP and corporate earnings) is going to be mind-blowingly big. The corporate earnings will be measured against the deep trough of the economic recession.
Add to this, we will probably see a Biden "infrastructure"/clean energy bill work its way through Congress in the second quarter (another $2+ trillion lined-up for the economy). Stocks (U.S.) are up 7% year-to-date, and will continue to float higher on this sea of liquidity.