After advancing early in the week, U.S. stock indices traded lower on Friday to finish mixed. Stock prices were supported by higher first quarter GDP growth, strong corporate earnings reports, and improving employment figures. The Covid-19 vaccination effort accelerated in the U.S. and abroad; this week saw the one-billionth worldwide vaccine dose administered. The collection of positive news helped propel the S&P 500 Index to reach a fresh record high on Thursday. However, potential pitfalls remain: coronavirus outbreaks in India and certain European countries could dampen the worldwide recovery until they are brought under better control.
For the week, the S&P 500 Index finished up 0.02%, while the Dow Jones Industrial Average fell 0.5%. Year to date, the S&P is up 11.3%; the Dow has gained 10.7%. Weekly first-time unemployment claims fell to a pandemic low of 553,000, but continuing claims marginally increased to 3.66 million. A federal program aiding self-employed and gig workers reported its lowest number of claims filed since the program was introduced last year. As both economic growth and the pace of vaccinations continue to pick up, the labor market seems poised to heal as we head into the summer months.
Federal Reserve Chairman Jerome Powell reiterated the Fed’s dual monetary policy stances of near-zero short-term interest rates and $120 billion of monthly asset purchases during his Wednesday press conference. While acknowledging that stock markets are a bit “frothy” at present, Powell again expressed belief that a sizeable, persistent rise in inflation is not likely to materialize until the excess unemployment caused by the pandemic is removed from the economy. For more insight on our expectations of inflation, please review our first quarter investment commentary.
The Commerce Department reported that the first quarter GDP grew at an annualized rate of 6.4%. Faster growth, combined with strong increases in corporate profits, continues to push stock prices higher. While stocks have risen since last year based on expectations for a powerful recovery, we believe that conditions remain conducive for stocks to achieve further gains over the second half of the year.
President Biden outlined his plans for increased federal spending and higher taxes this week during an address to a joint session of Congress. For the time being, these proposals are just that – proposals. Any major initiatives on taxation will likely face a long and complicated route through the legislative process.
As we process the latest from Washington, tax planning continues to be a widely discussed topic during this time of year, and we encourage you to reach out to your Wealth Advisor to discuss tax strategies for 2021. Please check out our 2021 tax guide to review useful information on tax rates, deductions, credits and deadlines. We also encourage you to review our recent article on understanding cybersecurity threats during tax season. As always, please contact us with any questions. We are here for you every step of the way.