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As a trusted advisor for others, we hope our regular updates will help you give those you serve some peace of mind in these volatile times.
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You Know that Summer is Near
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Heading into the holiday weekend, stocks recorded solid gains, bringing the large-cap S&P 500 Index to within roughly 0.5% of the all-time intraday high. Trading volumes were especially light, however, with Monday marking the fifth-lowest turnover in a non-holiday session since the pandemic began. The technology-heavy Nasdaq Composite and small-cap Russell 2000 indexes performed best.
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The major indexes were relatively steady for most of the week, which was attributed in part to a seeming lack of directional drivers. Investors did appear to keep a close eye on economic data, although the week’s reports sent conflicting signals. On the positive side, weekly jobless claims fell more than consensus expectations, to a new pandemic-era low of 406,000. In addition, durable goods orders (excluding the volatile transportation sector) increased by 1% in April, which was more than expected.
On the downside, some regional manufacturing gauges came in lower than anticipated, although still indicating solid expansion. Negotiations also continued on a new round of infrastructure spending, with Republicans unveiling a $928 billion counteroffer to President Joe Biden’s latest proposal of roughly $1.7 trillion.
Inflation remains a hot topic with evidence emerging during the week that consumers are postponing purchases in response to rising prices, particularly in the housing sector—pending home sales fell 4.4% in April, defying expectations for a small gain. According to the S&P CoreLogic Case-Shiller Index, average home prices in major metropolitan areas rose 13.2% in the rolling 12 months leading into March. This is up from a 12.0% annual rate the prior month and the highest rate of growth since December 2005. The Commerce Department reported that the median price of a new home sold in April was up 20.1% from a year earlier, the strongest annual gain since 1988.
Concerns about inflation resulting from supply chain pressures and the release of pent-up consumer demand may have also restrained the week’s gains. The Commerce Department reported on Friday that its core (less food and energy) personal consumption expenditure price (PCE) index increased 3.1% in the last 12 months ended in April, slightly above expectations and the biggest increase in nearly three decades (well above the Fed’s 2% target for its preferred inflation gauge). Several Fed officials stated that they wouldn’t be surprised to see bottlenecks and supply shortages push prices up in the coming months, but that much of those increases should prove temporary.
On the bond front, fixed income investors appeared to be reassured by the Fed officials’ comments, with the yield on the benchmark 10-year U.S. Treasury note decreasing over the week. The U.S. investment-grade corporate bond market traded with a solid tone for much of the week, supported by generally positive economic signals and better demand out of Asia. Buy and sell activity was mostly balanced, but selling shorter maturities in favor of longer-term bonds was evident.
Like the parable of the fig tree in Matthew 24, we can see many of the signs of continued market stability and growth (as well as those of a more “normal” summer) all around us. The branches may be tender and the trees continue to put forth their leaves, but we do not know the day or the hour when the economic forces that have been held at bay will begin to create more damaging head winds. As we enter the summer months, the team at Ambassador remains vigilant in its quest to integrate the right mix of investments to provide ample growth balanced with protection for the clouds on the horizon.
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Sources: Yahoo Finance, Reuters.com, and JP Morgan Market Insights
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