Market Update - Second Week Of May 2021
Stocks
For the first quarter (with 91% of the companies in the S&P 500 reporting actual results), 86% of S&P 500 companies have reported a positive EPS surprise. If that ratio holds, it will mark the highest percentage of S&P 500 companies reporting a positive EPS surprise since FactSet began tracking this metric in 2008.
Stocks were lower across the board last week after the U.S. inflation rate was reported higher than expectations and retail sales were just flat vs. the prior month (see Economic Data below). The S&P 500 declined 1.35%, the Russell 2000 lost 2.04% and the NASDAQ dropped 2.32%. Overseas, the international developed markets (MSCI: EAFE) were down 1.28% while the emerging markets (MSCI: EM) declined 2.99%. Within the U.S., consumer staples and financials were the best performing sectors while consumer discretionary and technology showed the biggest declines.
Fixed Income
Interest rates rose and bond values declined with the benchmark 10-year treasury yielding 1.63%, up 3 basis points. Yield rose across all maturities on inflation worries.
Commodities
Prices have risen to record levels for lumber, copper and iron ore due to the boost in demand with consumers flush with cash and production is unable to keep up as the economy re-opens. Some grain prices are also trading at their highest prices in nearly ten years.
Economic Data
U.S. consumer price index (CPI) rose 4.2% from a year ago, the fastest pace in more than 12 years. Core inflation—excluding volatile food and energy prices—rose 3.0% from a year ago versus expectations for 2.3% inflation. Both rates of growth are highly influenced by the low inflation rate a year ago during the COVID-19 pandemic.
The consumer sentiment index fell 6.2% to 82.8 in May versus the prior month. On a year-over-year basis, the index rose 14.5%. Consumers became more cautious over the risk of rising inflation but said they would continue to increase their spending due to a) pent-up demand, b) record savings and c) expectation that jobs will be plentiful.
Retail sales were unchanged in April from March—versus expectations for a modest 0.8% gain—after a 10.7% gain in March triggered by $1,400 stimulus checks. Sales were maintained $60 billion higher than the month of February. Year-over-year retail sales rose 51.2% and clothing sales rose 729%
Source: Gradient Investments
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