Market Comment: Stayin' Alive
U.S. stocks finished mixed today as choppiness in the markets held down the attempts of the Dow and S&P 500 to overcome early week losses, though the Nasdaq managed to break four-straight weekly losses. The markets appeared unsure of how to interpret strong global data, while Fed uncertainty continues with signs of rising inflation figures coming in all weeks. Optimism of strong global economic recoveries was bolstered by May business activity reports today that showed U.S. and U.K. growth registering records and Eurozone output the strongest in over three years, but cost burdens continued to be felt throughout. Earnings reports also came in fairly well. Treasuries were little changed, while the U.S. dollar recovered somewhat as currency volatility continued. Gold and crude oil prices gained ground. In other economic news, April existing home sales unexpectedly dropped. Asia finished the week out in mixed fashion and Europe traded mostly higher following the data.
The Dow Jones Industrial Average rose 124 points (0.4%) to 34,208, while the S&P 500 Index dipped 3 points (0.1%) to 4,156 and the Nasdaq Composite declined 65 points (0.5%) to 13,471. In moderate volume, 966 million shares were traded on the NYSE and 3.6 billion shares changed hands on the Nasdaq. WTI crude oil advanced $1.64 to $63.58 per barrel. Elsewhere, the Bloomberg gold spot price rose $2.81 to $1,880.02 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—rose 0.2% to 89.99. Markets were mixed for the week, as the DJIA decreased 0.5% and the S&P 500 shed 0.4%, while the Nasdaq Composite advanced 0.3%.
The markets have seen this volatility largely because of concerns about recent signs of rising inflation pressures. It seems that everyone wants to know how inflation will affect the markets. with the latest CPI report reinforcing inflationist' fears. Yet we don’t believe that inflation will rise to 1970’s levels and will be a transient problem in the near term.
Cryptocurrency has also been a large part of the market volatility. We will address more about Bitcoin in an upcoming comment.
May manufacturing and services growth accelerates, existing home sales decline, not what we expected this week, but it has been rising significantly so a correction was in order. Housing supplies are in short supply.
Existing home sales dropped 2.7% month-over-month (m/m) in April to an annual rate of 5.85 million units, versus expectations of a slight increase to 6.07 million units from March's unrevised 6.01 million rate. However, existing home sales were up 33.9% y/y.
European stocks were mostly higher, Asia mixed following strong data and U.S. rebound yesterday. This supports our recent move into international.
European equities traded mostly higher, seeming to find some support from the resiliency in the U.S. yesterday that ended a three-session losing streak. The markets moved higher as a flood of data showed economic activity is ramping up as COVID-19 restrictions ease in the region as vaccine rollouts gain steam. Markit's Eurozone Composite PMI for May increased to 56.9, from April's 53.8 level, and versus the expected rise to 55.1.
Stocks in Asia finished mixed in the final session of the week, following the end of the three-day losing streak of the U.S. yesterday, while the markets continued to grapple with elevated inflation worries and what implications that can have on the extremely accommodative global monetary policies. Moreover, expectations of accelerating economic recoveries across the world remain and the region kicked off a global read on May business activity.
Stocks see another second-half rebound.
U.S. stocks experienced a tale of two halves for the second-straight week, rebounding after hump day with the Information Technology sector leading the bulls. The first half of the week once again saw the bears work off some of the froth built up in the markets as inflation concerns remained the major contributor.
As such, the midweek release of the minutes from the Fed's April monetary policy meeting headlined the economic front. The report showed policymakers acknowledged the solid recovery in the economy but continued to stress that we remain far from meeting its goals of maximum employment and price stability.
Next week, inflation will likely remain top of mind for the markets and reports on the economic calendar, such as May Consumer Confidence, the first revision (of two) of Q1 GDP, personal income and spending, and the final May University of Michigan Consumer Sentiment Index, are likely to be dissected with a keen eye on their inflation components. The economic week will also deliver new home sales and the preliminary durable goods orders report both for April.
In the past month despite inflation fears, the bond market has discounted much of the rebound in the economy since last year.
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