Weekly Market Update 5/8/2021

Well here in Las Vegas it seems we skipped right over spring, aside from our yearly visit from our friend the desert wind. With this week nearly touching 100 degrees we are full force in to the summer here in locally. 

I hope everyone who had a chance to join me for the Quarterly Market Update on Thursday enjoyed the presentation. Those that were unable to make, or if you would like to view it again, please feel free to click here Q1 Quarterly Market Replay. 

If there are any questions please feel free to reach out to me. 

Here is what this week brought to us

U.S. equities finished out a choppy week in the plus column, with Information Technology stocks lending support in today's session, but weakness in tech issues early in the week left the Nasdaq as the lone major index to not post a gain on a weekly basis.

Investors seemed to somewhat shrug off a much softer-than-expected read on April employment growth, as the report seems to be suggesting the recovery is taking longer than many economists were estimating, easing concerns about the Fed reining in its extremely accommodative monetary policy.

Treasuries initially rose on the jobs report, which applied some downside pressure on yields, but bond prices finished mixed. The U.S. dollar was decisively lower, continuing to give back all of Q1's rally, and crude oil prices saw only modest gains, while gold was solidly higher.

Earnings results continued to pour in to close out the week, with reports from Beyond Meat, Peloton Interactive and Cigna fostering mixed reactions. Europe saw widespread gains, bolstered by strong earnings and economic data, while Asia finished mixed before the release of the U.S. jobs report and amid some upbeat data in the region.

The S&P 500 started the week extending its consolidation pattern amid a rotation into cyclical stocks, then ended the week on a high note as the gains broadened out to the battered technology stocks. The benchmark index rose 1.2% to all-time highs, putting it behind another record-setting performance in the Dow Jones Industrial Average (+2.7%). 

The Nasdaq Composite declined 1.5% after being down as much as 3.8% this week. The Russell 2000 increased just 0.2% to stay within its three-month consolidation trend. 

From a sector perspective, the cyclical energy (+8.9%), materials (+5.9%), financials (+4.2%), and industrials (+3.6%) sectors scored solid gains; conversely, the information technology (-0.5%) and consumer discretionary (-1.2%) sectors dragged on index performance amid relative weakness in their growth-stock components. 

This was one of the busiest weeks in earnings news, but like the weeks before, the results were not a catalyzing factor this week despite remaining on the side of better than expected. More interesting were the key economic reports that indicated a deceleration in the fast-paced economic recovery and perhaps explained the general lackluster response to earnings. 

Specifically, nonfarm payrolls increased by just 266,000 in April (Briefing.com consensus 1,000,000). The ISM Manufacturing Index for April decelerated to 60.7% (Briefing.com consensus 65.3%) from 64.7% in March. The ISM Non-Manufacturing Index for April decelerated to 62.7% (Briefing.com consensus 65.0%) from 63.7% in March.

The huge payrolls miss was the center of attention for market participants and lawmakers on Friday. The former suspected that the extended unemployment benefits provided a temporary disincentive for workers to seek employment, but this claim was refuted by the Biden administration. The Fed perhaps viewed the report as a justification to refrain from thinking about tapering asset purchases. 

On inflation, the Prices component within the ISM Manufacturing Index reached its highest level since 2008 at 89.6%, corroborating an observation from Warren Buffett that his businesses are seeing "substantial inflation" and that they're raising prices in response to the higher costs they are incurring.

Two things here: while the economic data missed elevated expectations, the ISM reports still indicated robust expansionary activity, and nonfarm payrolls growth was still positive. Interestingly, Treasury Secretary Yellen said interest rates may need to rise somewhat to prevent the economy from overheating, but later walked back her comments to say she wasn't predicting, nor recommending, the Fed to hike rates in response to government stimulus proposals.

Evidently, the peak growth narrative that slowed down the market last week was somewhat weakened this week based on the divide between the Dow (cyclically-oriented) and Nasdaq (growth-oriented). The latter would have outperformed if investors were concerned about economic growth rates. 

The Treasury market, however, remained a signpost for lingering peak growth concerns. The 10-yr yield decreased five basis points to 1.58% amid increased demand. 

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®
Founder/Lead Advisor
Diazo Wealth Group
702-745-1800 Direct
702-278-6560 Cell

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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