Weekly Market Update 5/28/2021
by Justin Long, on May 29, 2021
Last night, our Golden Knights clinched victory at home in Game 7, moving on to Round 2 of the Stanley Cup Finals to take on the Colorado Avalanche. The family and I watched the game from home, and it was an exciting start to the holiday weekend. This weekend is about a lot more than the unofficial start of summer, the gatherings, BBQs, and shopping deals though.
Memorial Day, originally called 'Decoration Day' was established in 1868, to commemorate those who died in the Civil War. May 30th was chosen to observe the holiday because flowers would be in bloom nationwide according to the VA. In 1971, it became a national holiday observed in the final weekend in May, and expanded to Veterans of all American wars.
We at Diazo are deeply grateful for those men and women who gave the ultimate sacrifice to preserve the freedoms we enjoy today. In honoring our fallen heroes, we also send gratitude to their loved ones, who feel those sacrifices beyond measure; it is imperative that we remember that each of those headstones in Arlington National Cemetery and others, represent individuals -- mothers, fathers, sons, daughters, sisters, brothers, friends-- who did not make it home to enjoy those freedoms with those they held so dear.
Each year, our family takes part in the National Moment of Remembrance at 3pm with our boys, to pause and truly reflect on the meaning of Memorial Day. In what ways do you honor the memory of our veterans on Memorial Day? We would love to hear your traditions.
And now on to the recap of this week:
U.S. equities finished the last trading day of May in the plus column, procuring solid weekly gains along the way, as investors head into the three-day Memorial Day holiday weekend.
Information Technology issues led the way, with almost all the sectors higher on the day, save some slight weakness in Materials. Treasury yields were able to remain calm, nudging lower amid a rise in bond prices, despite further signs of inflation and as data appeared to keep optimism of economic recovery in play. Earnings reports from Dow member Salesforce.com, Costco Wholesale, and Ulta Beauty came in above forecasts to add to the positive mood.
On the economic front, personal income fell and spending rose, the final read on May consumer sentiment was revised slightly higher, and Chicago manufacturing activity posted the highest level since the 1970s.
Elsewhere, the U.S. dollar regained some footing after falling to a four-month low, while gold ended higher in choppy trading and crude oil prices turned lower in muted action. Europe finished with widespread gains, while markets in Asia were mostly higher.
The stock market had all-around good performance from the large-caps, mid-caps, small-caps, and even the micro-caps. Risk assets appeared to draw support from the calmness of the Treasury market, which staved off pestering inflation concerns and accompanying valuation concerns.
The Nasdaq Composite (+2.1%), Russell 2000 (+2.4%), and iShares Micro-Cap ETF (IWC, +3.3%) rose more than 2.0%. The S&P 500 (+1.2%), Dow Jones Industrial Average (+0.9%), and S&P Mid Cap 400 (+1.4%) each advanced closer to 1.0%.
From a sector perspective, the consumer discretionary (+2.2%), communication services (+2.5%), information technology (+1.6%), and real estate (+2.1%) sectors finished atop the leaderboard. Conversely, the utilities (-1.6%), health care (-0.7%), consumer staples (-0.4%), and energy (-0.02%) sectors closed lower.
Highlighting some of the economic data, which should help explain the relative strength in the Treasury market (the 10-yr yield declined five basis points to 1.58%):
- New home sales declined 5.9% m/m in April to a seasonally adjusted annual rate of 863,000 (Briefing.com consensus 980,000)
- The Conference Board's Consumer Confidence Index dip 0.3 points to 117.2 in May (Briefing.com consensus 118.0)
- Durable Goods Orders unexpectedly decreased 1.3% m/m in April (Briefing.com consensus +0.8%)
- Personal income declined 13.1% m/m in April (Briefing.com consensus -15.0%), as the total of stimulus payments made was greatly reduced from March
The data supported the thesis that economic growth rates are peaking, which in turn would suggest inflation rates are also peaking. The latter was corroborated by longer-dated Treasury yields moving lower (not higher) to the following inflation news:
- The PCE Price Index -- the Fed's preferred inflation gauge -- was up 3.6% yr/yr in April
- The expected year-ahead inflation rate was a record 4.6% in the final May reading for the University of Michigan Index of Consumer Sentiment
- Costco's (COST) CFO said, "inflationary factors abound" and estimated that overall price inflation at the selling level is in the 2.5-3.5% range, or above prior expectations.
The question that remains is will inflation really be as transient as the Fed expects, especially when additional fiscal stimulus appears to be on the horizon? Senate Republicans confirmed a $928 billion infrastructure counteroffer to the Biden administration's $1.7 trillion American Jobs Plan while the White House confirmed a $6 trillion budget for FY22, which would include both the American Jobs Plan and American Families Plan.
The Treasury market seems to think so.
As always, it is my pleasure to bring you this weekly update. If this or anything else is causing you pause or you would like further details, please feel free to reach out to me and we can schedule some time to chat.
Justin J. Long CFP®
Diazo Wealth Group
Upcoming Economic Calendar
Source: 1. FactSet
Source: Week in perspective provided by Briefing.com. Briefing.com offers live market analysis on their web site www.Briefing.com.
Innovative Adviser Solutions, LLC, a registered investment adviser, dba Diazo Wealth