May 10 – May 14 Week in Review
Markets corrected as investors digested a series of divergent and unexpected economic data. The S&P 500 fell by -1.4%, the Dow Jones Industrial Average by -1.1%, while the NASDAQ Composite declined by an even greater -2.3% as growth oriented stocks continued their selloff. The Russell 2000 dipped -2.1% lower, depicting what was also a challenging week for small cap stocks.
Fears around higher than expected inflation reverberated through the market. The highlight came on Wednesday when the Consumer Price Index, or CPI, was reported. The April CPI grew 0.8% from the month of March, or 4.2% on an annualized basis. This was well ahead of expectations, with sharp increases in the price of used cars, airfare and rental cars all adding to the higher reading. Later in the week the Producer Price Index, which measures changes in input prices, rose 0.6% from the prior month. This led to concerns that higher prices may continue as manufacturers gradually pass their higher costs on to consumers.
Consumer staples, financials and materials all finished with returns that were slightly positive. On the other hand, consumer discretionary, technology and communication services sectors experienced the greatest declines. The technology sector has now fallen into correction territory as some investors have been repositioning out of the space and into more economically sensitive stocks.
Equity market losses were greatest by the close on Wednesday, before rebounding during the back half of the week. While economic indicators are volatile, they are generally pointing toward a positive economic rebound, which is giving some investors confidence to buy on the dips.
There were other notable news items that reflected positively for stocks. Updated guidance from the CDC around mask wearing indicates that vaccinated consumers maybe become more comfortable resuming their traditional activities without a mask. In addition, the FDA’s approval of the Pfizer vaccine for children 12-15 years of age should increase the ability to reach heard immunity. Lastly, new jobs data reinforced the strong supply of job opening.
After rising during the prior week, the price of bonds fell as yields rebounded in response to the CPI data. Some investors interpreted Wednesday’s inflation report as a sign that Fed tapering may occur earlier than is currently expected. This led to higher yields, specifically among longer dated maturities. All told the yield on the 2-year Treasury held steady closing the week at 0.15%. Conversely, the 10-year yield finished at 1.63%, up five basis points. Intra-week, the rate on the 10-year had crested above 1.70% before retracing on Friday.
In other markets, the price of West Texas Intermediate crude oil increased by 0.7% to finish at $65.37 a barrel. Intra-week, the price of crude eclipsed $66/barrel, marketing the highest price since October of 2018. Outside of oil, prices began to correct in other commodities such as lumber, copper and iron ore. All three have seen significant price increases, hitting record highs at various points this month. Gold was steady on the week, closing at $1,843 a troy ounce. The dollar remains under pressure but was able to finish the week where it began.
May 17 – May 21 Economic Calendar
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The S&P 500 index includes 500 leading companies in the US and is widely regarded as the best single gauge of large-cap US equities. The Dow Jones Industrial Average (DJIA) is a widely-watched benchmark index in the U.S. for blue-chip stocks; it is a price-weighted index that tracks 30 large, publicly-owned companies trading on the New York Stock Exchange and the NASDAQ. The Nasdaq Composite Index is a large market-cap-weighted index of more than 2,500 stocks, American depositary receipts (ADRs), and real estate investment trusts (REITs), among others. The Russell 2000 index measures the performance of approximately 2,000 smallest-cap American companies in the Russell 3000 Index. The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. An index is not a security in which an investment can be made, as they are unmanaged vehicles that serve as market indicators only. It should not be assumed that portfolio holdings will correspond directly to the comparative index benchmark shown above.