Weekly Snapshot June 11, 2021
Market Review: Week Ending 6/11/2021
Reaction to inflation and bond yields sent the markets in different directions – The S&P500 Index (S&P500) advanced +0.41% to a record high, the NASDAQ Composite (NASDAQ) gained +1.85%, and the Russell 2000 Index (R2000) jumped +2.16%, while the Dow Jones Industrial Average (DJIA) fell -0.80%.1 The unexpected sharp decrease in bond yields drove a rotation into NASDAQ and growth stocks. The iShares S&P500 Growth ETF rose +1.3% versus the iShares S&P500 Value ETF, which fell -1.0%.2 Within S&P 500 sectors, outperformers for the week were REITs +1.99%, Healthcare +1.93% and Consumer Discretionary +1.62%, while sector underperformers were Financials -2.38%, Materials -2.02%, and Industrials -1.74%.3
In May, the Consumer Price Index (CPI) rose at a 5.0% annual rate, a level of inflation not seen since 2008. Excluding food and energy, the Core CPI increased 3.8%, the most since 1992.4 Reopening categories (hotel lodging, airfare, and apparel) along with car prices due to semi-chip supply shortages led the index higher. However, the report did not move the needle on the inflation debate (inflation transitory versus inflation enduring) since a large percentage of the inflation jump can be explained to baseline effects – a relatively low-level inflation a year ago due to the pandemic.
Despite continued economic growth and rising prices, bond yields were sharply lower this week. The yield on the 10-year Treasury note fell to 1.46%, recording its fourth consecutive week of declines. As recently as March 31, the yield had been at 1.74%.5 Bond prices rallied given stronger institutional demand for U.S. Treasuries, tepid economic data, and an unwinding of short positions as inflation concerns by investors may have peaked. This move supports the Federal Reserve’s transitory position and is now reflected in lower inflation expectations, as seen in the University of Michigan’s consumer survey.
Two areas of potential concern that are rebuking the transitory inflation theme are rents and oil. U.S crude oil prices rose for the third week in a row, lifting prices above $70 per barrel, a two-and-half year high. In addition, U.S. CPI Owners’ Equivalent Rent for May jumped to 0.31% month-over-month, a post-pandemic high.6
WHAT WE WILL BE WATCHING THIS WEEK
Various economic reports on the health and direction of the economy:
- Federal Reserve Board two-day meeting on monetary policy
- Philadelphia Fed Index – regional manufacturing growth
- Empire Manufacturing Survey
- U.S. Census Bureau – Retail Sales, Housing Starts
- U.S. Department of Labor – Weekly Unemployment Claims
- U.S. Conference Board – Leading Economic Index
The speed and direction of Infrastructure stimulus negotiations.
As always, we appreciate your confidence in our team.
Fundamentum Investment Committee
John Nichol, CFA® – Chief Investment Officer
Trevor Forbes – Investment Committee
Robert Armagno – Investment Committee
Christopher A. Silipigno, ChFC® – Investment Committee
Christopher G. King – Investment Committee
Timothy J. Shumsky – Investment Committee
1 FactSet – 6/11/2021
2 FactSet – 6/11/2021
3 FactSet – 6/11/2021
4 FactSet – 6/11/2021
5 John Hancock – 6/11/2021
6 Goldman Sachs Global Fixed Income Weekly – 6/11/2021
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