Categories
Learn

Weekly Market Recap

Last week’s biggest headline was consumer price inflation (CPI) which registered +5.0% y/y in May, the first “five-handle” US inflation print in nearly 13 years. Under the covers, however, the report was less alarming. Core CPI, which strips out volatile food and energy prices, was just +3.8% y/y.

Moreover, more than half of the total came from just six components associated with the release of pent-up demand: food away from home, lodging, airfares, rental cars, used cars, and vehicle insurance.

Markets paid attention to these details, and as a result, inflation-sensitive asset classes rallied last week. Equities were led by technology stocks, many of which have long-dated cash flows that are especially sensitive to discount rate assumptions. The return of tech leadership in equities dates to mid-May, shortly after the previous month’s CPI report which showed similarly transitory drivers underneath an upside headline surprise.

Bond markets also rallied, as 10y Treasury yields fell 10 basis points to 1.45%, their lowest level since early March when rates were still rising quickly. Credit spreads were stable, pushing corporate and muni bonds prices higher (and yields lower) in sync with Treasuries. Mortgage rates also fell last week.

Most commodities traded in a narrow range as inflation fears eased. That said, oil ticked higher by approximately $1/barrel, pushing WTI above $70 for the first time since the outset of the pandemic.

Categories
Learn

Weekly Market Recap

Equity markets rallied last week, particularly after Wednesday’s release of consumer price inflation (CPI) data that was slightly below consensus estimates. The S&P 500 and the Dow both finished the week at fresh all-time highs, while the Nasdaq remains ~5% below its mid-February record. Small and midcap stocks continued their run of dominant performance, extending their YTD lead over large caps. International indices also finished higher.

Rates drifted lower for much of the week before abruptly moving higher on Friday. In the end, 10-year yields rose 5bp on the week to 1.62%, the highest close since February 12, 2020. 30-year yields rose 8bp to 2.38%, the highest level since late 2019. Investment grade credits spreads where largely unchanged while high yield spreads tightened, resulting in moderate price declines for high quality corporates while riskier bonds were close to flat.

Oil prices fell early in the week and then rallied; the US dollar did the reverse.

In an encouraging sign for the labor market, weekly jobless claims (new and continuing) reached their lowest levels of the pandemic in data released on Thursday. See the Chart of the Week for a time series.

Finally, in a Thursday night address to the nation, President Joe Biden announced that he would direct all US states to make vaccines available to any adult that wants one by no later than May 1st.