The economic recovery fueled by excess liquidity and driven forward by increased vaccinations has begun to accelerate, judging from the most recent manufacturing and payroll data. The domestic ISM Manufacturing survey hit the highest level in 38 years, the global Markit Manufacturing survey ramped to the highest level since 2010, and March Nonfarm Payrolls surprised to the upside with 916,000 jobs. All three data series were well above expectations and we haven’t even seen the impact of any recent stimulus measures in the data. The only way to view this, in our view, is as a “Capital V” recovery that is in the early innings, and the only thing that could stand in the way would be another shutdown of the economy to contain new Covid-19 strains or a policy mistake by the Fed. Neither appear imminent. The macro picture appears clear. The Fed has made it crystal clear it doesn’t plan to act preemptively, yet the debate on when it will begin withdrawing excess accommodation has already begun. We continue to take the Fed at its word and expect no change in policy in coming months. In every presentation, Fed Chair Jerome Powell reinforces the plan of waiting for full employment and following the data, and it wasn’t long ago that Fed Vice Chair Richard Clarida suggested the Fed was looking for over 2% for a full year before changing policy. Our core fundamental thesis continues to suggest we are early in a new long-duration economic and market cycle: 1.We still believe the Fed. The Fed hasn’t deviated in its messaging despite the rise in long-term inflation breakevens and stronger economic data. 2.Three stimulus measure remain in place. The monetary, fiscal, and interest expense stimulus measures remain firmly in place. According to Brian Reynolds at BReynolds Strategy, S&P 500 (SPX) companies can shave 20% off their interest expense, which could add over 3% to SPX operating EPS. 3.Raising our 2021 SPX operating EPS estimate. Earnings growth should continue to beat expectations based on easing financial conditions, historic excess liquidity, and increased demand as the global economy reopens. We are raising our 2021 SPX operating EPS estimate from $176 to $178.50 based on the rise in consensus forecast, allowing for the positive impact of corporate interest expense reduction and negative impact of a 28% corporate tax rate. The tactical picture is not so clear. The SPX continues to make new highs and the CBOE Volatility Index has dropped below 20, yet there has been no real leadership in recent months. Instead, there has been day-to-day internal rotation that has kept the indices grinding higher while active managers have been frustrated in what the majority of stocks are doing. We reach this conclusion based on: 1.Sharp drop in NAAIM Exposure Index. The drop in the National Association of Activity Independent Managers (NAAIM) Exposure Index to just 52% represents the lowest level since the September swoon and October whoosh last year. 2.The McClellan Summation Index downtrend. The McClellan Oscillator and Summation Index are technical indicators that tell us what the majority of stocks are doing on a short- and intermediate-term basis, respectively. Noted technician and friend Helene Meisler of TheStreet.com points out that it is unusual to have the SPX making a record high while the Summation Index remains in a downtrend. It has just ticked higher in recent days and likely isn’t a sign of some pending crisis, but does show why active money managers are frustrated. 3.Fewer new highs. Although the SPX is printing new highs, there have been fewer new highs on the NYSE and SPX, which suggests less “oomph” in buyers. | 
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