Market Insights

The fear index is crumbling as one positive story after another hits the market.

Cboe’s VIX, which measures the cost of hedging the S&P 500, closed at 18.86 on Friday. That was its lowest reading since February 24, 2020, immediately before the coronavirus pandemic — a sign of confidence returning to the market.

The major indexes advanced, led by the S&P 500’s 1.6 percent gain. More than half the move came in the final hour of trading as investors waited for pullbacks that never happened. It could indicate cash remains on the sidelines, waiting to enter.

Last week seemed to provide many reasons to be bullish.

First, the economy continues to roar back to life. Initial jobless claims, the most reliable (and frequently updated) employment number was much better than expected. Just 684,000 Americans sought unemployment benefits last week. It was 46,000 fewer than expected and the lowest reading in a year.

Consumer sentiment was also revised sharply higher to its highest level since March 2020.

Retailer Revival

Speaking of the consumer, there were several bullish stories on retailers. L Brands (LB), the parent of Bath & Body Works, crushed estimates. High-end furniture store RH (RH) also blasted to new highs after raising guidance.

In a separate story, research firm Coresight Research predicted store openings will outnumber store closures in 2021 for the first time in several years. In other words, the narrative of “Amazon killing retailers” is a thing of the past.

Perhaps the biggest surprise came from Darden Restaurants (DRI). Not only did earnings, revenue and guidance beat estimates. The parent of Olive Garden also announced voluntary pay hikes and bonuses for hourly workers.

Goldilocks on Steroids?

Last week was packed with speeches and testimony from Federal Reserve officials. Two comments in particular stood out.

“We won’t be preemptively taking the punchbowl away,” said Mary Daly, president of the San Francisco Fed. That’s a reference to the idea of the central bank keeping interest rates low to support the economy.

“We are always on the lookout for runaway inflation, but right now we are just not seeing it,” Raphael Bostic, head of the Atlanta Fed, was quoted as saying by Marketwatch. He added that there’s no reason to remove easy-money policies any time soon.

Fed Chairman Jerome Powell made similar comments. He additionally promised to give huge warnings before even thinking about higher rates.

It’s an unprecedented situation. The world’s biggest economy is rebounding sharply without significant inflationary risks. It creates the potential for rapid employment and profit gains. It’s like Goldilocks on steroids.

Intel’s Big News

Like DRI, Intel (INTC) is also bullish on its future. The semiconductor giant announced plans to spend $20 billion on two new factories in Arizona. It was the first major step by new CEO Pat Gelsinger.

The decision comes amid a chip shortage that’s crippled auto production. It also lifted equipment supplier Applied Materials (AMAT) to a new all-time high and was a big vote of confidence in the U.S. economy.

The news highlights a disparity within technology. Less glamorous hardware companies like INTC, Cisco Systems (CSCO) and Dell Technologies (DELL) are rallying, while 2020’s leaders are stalling.

For example, INTC is up 30 percent in 2021, placing it near the top of the Dow Jones Industrial Average. Guess who’s doing the worst? Apple (AAPL), down almost 9 percent.

Transports Are Flying

Finally, economically sensitive companies in the transportation sector are taking off. The Dow Jones Transportation Average ($DJT) gained 3 percent last week and is up 17 percent this year.

Beaten-down travel stocks like Avis Budget (CAR) and American Airlines (AAL) have led the advance, but now others like railroads and FedEx (FDX) are starting to catch up.

Remember that transportation socks are highly cyclical and took a beating last year. They’re one of the most traditional ways to benefit from an economic rebound.

Homebuilders and chipmakers were some of the other strong sectors last week. Chinese stocks, biotechnology and precious metals performed the worst.

Payroll Data This Week

This week features several important economic reports. It’s also cut short by Good Friday.

The first big number is consumer confidence tomorrow motoring. Lululemon (LULU) releases earnings in the afternoon.

ADP’s private-sector payrolls report is Wednesday morning, followed by crude-oil inventories. Walgreen Boots Alliance (WBA) reports in the premarket. Micron Technology (MU) is due after the closing bell.

Thursday brings jobless claims and the Institute for Supply Management’s manufacturing index.

The Labor Department’s non-farm payrolls report is on Friday (even though the market is closed.)