Weekly Market Commentary May 31st to June 4th 2021
A holiday-shortened week was light on economic releases, but what came out continued the recent positive trends of the re-opening economy. Lots of talk of stimulus-driven inflation filled the airwaves and we at Plimoth Investment Advisors continue to process the data to determine if the recent price increases are transitory (likely) or more permanent (possibly). Transitory inflation can be described as temporary and event-driven (for instance the Fed stimulus program) and would imply prices should moderate eventually. Rising inflation that is more permanent would imply the Fed would eventually feel empowered to step in at some point and boost short-term interest rates. However, that point is as hotly debated as whether the current inflation is truly transitory. Head spinning yet? Keep reading this space for more clarification in the weeks to come. As of now, we agree with most economists who believe inflation is more transitory in nature and that rates will be kept unchanged until at least 2022.
In economic data releases this week, the winners were the Institute of Supply Management (ISM) Manufacturing and Services Indices. These two readings are popular monthly gauges in determining the strength of our economy. Keeping in mind that anything over 50% is considered expansionary, the ISM Manufacturing Index for May came in at 61.2% beating both the estimate (60.5%) and April’s report (60.7%) to reiterate that U.S. manufacturing is booming and that the only thing in its way are supply chain bottlenecks. The ISM Services Index recorded its highest number ever at 64.0% and was the twelfth straight expansionary month. It beat consensus (62.5%) and April’s release (62.7%) and, considering approximately 70% of the jobs in the U.S. are in the services sector, truly shows folks are getting back to work and that demand for that work is high. Factory Orders for April snapped an 11-month growth streak and came in at a disappointing -0.6%. Initial blame is pointed at current widespread labor and supply chain shortages.
The employment front this week was a mixed bag. Friday’s Nonfarm Payrolls for May showed a disappointing 559,000 new jobs created while consensus was calling for 650,000. However, the unemployment rate dropped from 6.1% to 5.8% while average hourly earnings dropped from 0.7% to 0.5%. Lastly, Weekly Initial Jobless Claims again continued to trend lower coming in at 385,000 vs 405,000 last week. Keep in mind that the Fed views the employment situation as the number one barometer for determining when to move short-term interest rates.
In the markets, it took a Friday rally to push all three major equity indices into the black for the week. The S&P 500 finished up 0.6% to close the week at 4,230; the Dow Jones Industrials closed up 0.6% at 34,756; and the NASDAQ ended at 13,814 or up 0.5%. In fixed income, the 2-year U.S. Treasury finished up slightly at 0.15%; and the 10-year and 30-year fell to 1.56% and 2.23% respectively.
Next week look for consumer price data, inventory levels, and the weekly jobless claims.