U.S. and international equities
The major US markets ended the week mixed with the growth-laden Nasdaq Composite finishing the week higher, while the Dow Jones gave back ground. Emerging market equities (MSCI EM) as well as developed markets (MSCI EAFE) finished the week lower, reversing two weeks of gains.
Value pulls back
Given the strength of the economic recovery, energy, materials, financials, and industrials have done quite well this year, outperforming the S&P 500. This week, traders took some profits off the table in these groups, while falling interest rates helped generate interest in growth stocks.
Red hot real estate
After strong performance over the past two weeks, real estate is the leading S&P 500 index sector for the most recent rolling one-month period. The economy’s strong reopening and recent interest-rate stability have increased the bullishness among real estate investors.
Fixed income recap
The Bloomberg Barclays US Aggregate gained ground this week as yields declined slightly. Many fixed income sectors moved in lockstep. High yield bonds also had a solid week with the Bloomberg Barclays High Yield index gaining over 0.4%. This bond sector continues to be the best performing sector by far year to date.
Crude reaches $70
This week’s gain in West Texas Intermediate (WTI) crude oil pushed its price over $70 a barrel for the first time since early October 2018. Prices have garnered support from increased global demand expectations along with the agreement from OPEC (Organization of the Petroleum Exporting Countries) and Russia to keep to the existing pace of production increases through July. A beneficiary of the oil trade, natural gas, had an outstanding week, gaining over 6%.
“This week, the S&P 500 Index hit a new all-time high, while volume was on the lighter side,” explained LPL Research Senior Vice President and Director of Research Marc Zabicki. “A fall in the 10-year Treasury yield and new lows in volatility contributed to some renewed take-up of higher-beta stocks. However, despite the modestly bullish activity, it still feels to us like a market in search of the next catalyst.”
U.S. Economic Data Recap
Small business confidence wanes
U.S. small business confidence declined in May. This was the first decline in four months, as a nationwide labor supply shortage along with inflation concerns hampered small business owners’ economic outlooks and prevented them from taking advantage of growth opportunities presented by the reopening.
U.S. wholesale inventories increased solidly in April as companies restocked inventory to meet pent-up demand. This being said, supply constraints still make the present rate of inventory build unsustainable. Manufacturers continue to be constrained by raw material and labor shortages. Moreover, supply challenges are accentuated by a worldwide semiconductor shortage. This particular shortage is impairing vehicle production as well as the manufacturing of electrical equipment and appliances.
CPI inflation beats expectations
The Bureau of Labor Statistics released May data for the Consumer Price Index (CPI) on Thursday showing that headline CPI increased 0.6% month over month compared to the consensus of 0.5%. Core CPI, which excludes volatile food and energy prices, increased at 0.7% month over month vs. the consensus of 0.5%. These readings caused core inflation to reach a 29-year high.
Initial jobless claims continue to decline
According to the U.S. Department of Labor, under 400,000 Americans filed for unemployment insurance for the second straight week, another new pandemic low. Moreover, continuing claims dropped to their lowest level since March 2020 at less than 3.5 million.
Next week, the following economic data is slated to be released:
Tuesday: May Producer Price Index, retail sales, industrial production, manufacturing production, June National Association of Home Builders (NAHB) and April business inventories
Wednesday: Federal Open Market Committee meeting, May building permits, housing starts, export/import prices
Thursday: Weekly initial and continuing claims, May Leading Indicators
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