May 18, 2021

Weekly Market Commentary May 10th to May 14th 2021

Inflation was the key focus of the week. Consumer prices surged 0.8% in April, marking the biggest monthly advance in headline CPI since 2009. The increase pushed the year-over-year rise to 4.2%. Core CPI (ex food and energy) rose 0.9% for a 3.0% annual gain. Base effects (from a low starting point) can explain the year-over-year measurements; huge drops in energy prices coupled with the first full month of anemic pandemic demand this time last year are tilting the annual comparisons upward. The big monthly gains are harder to explain away. Producer costs that have been driven up due to supply chain bottlenecks are now being passed through to the consumer by companies with pricing power. Producer prices also rose by more than expected in April at a rate of 0.6%, bringing the year-over-year rise to 6.2%. Core PPI was up 0.7% for a 12-month increase of 4.1%.

Retail Sales were flat in April, missing modest expectations for a 1% increase. This comes on the heals of a massive spike in March, revised higher to 10.7%. The timing of stimulus spending is making the month-to-month comparisons of personal consumption lumpier than usual.

Things looked better on the employment front after last week’s disappointing numbers. Job openings rose to 8.123 million in March, marking the largest JOLTS reading on record. While the number of actively unemployed was at 9.710 million, the difference marks the smallest gap between the two readings since the start of the pandemic. Initial Jobless Claims dropped by 34,000 to reach a new pandemic low of 473,000.

Stocks staged a final session rally after steep declines earlier in the week. Concerns about inflation rattled investors despite continued positive earnings reports. The S&P 500 ended the week lower by -1.4% to 4,173. The NASDAQ declined -2.3% to 13,429. The bellwether 10-Year U.S. Treasury finished the week with a modestly higher yield at 1.63%

Next week will be lighter on economic data, mainly focused on housing. The release of the FOMC meeting minutes will likely garner the most attention as analysts parse any wording changes trying to determine just how “transitory” inflation pressures may be.