U.S. and International Equities
The major US markets were higher this week, as market participants took concerns about inflation in stride. US small caps (Russell 2000) equities were the best performing US asset class this week and continue to lead as we approach mid-year. Going forward, LPL Research believes the early-stage bull market along with young economic expansion could continue to help small caps. Markets overseas finished higher, with the emerging market equities (MSCI EM) outperforming the developed markets (MSCI EAFE).
Earnings, Earnings, Earnings
S&P 500 Index earnings for the first quarter are tracking to a remarkable 51% year-over-year increase, more than double the 24% increase expected on March 31. The consensus S&P 500 earnings estimate for the next four quarters has increased by an unusually strong 4.2% since earnings season began. Year to date, the consensus S&P 500 earnings estimates for 2021 has increased by over 12%, similar to the index’s advance.
Fixed Income Recap
Most fixed income sectors gained marginally this week, as interest rates moved slightly lower. Investment grade corporate bonds, as denoted by the Bloomberg Barclay’s Credit Index, had a strong week gaining more than 0.5%.
Commodities Still Strong
Commodities across the board had a strong week, which has been reflective of this month’s performance. Given the economic reopening, higher order demand for goods and services along with tighter supply have caused commodity prices across the board to appreciate. In addition, gold prices have performed well this month, in part because market participants are seeking the commodity as a potential inflation hedge.
U.S. and International Economic Data Recap
The month-over-month reading for personal consumption expenditure (PCE) inflation in April increased to 0.6% while the core reading, which excludes food and energy, rose to 0.7%. These numbers were approximately in line with economists’ median expectations. The Federal Reserve (Fed) will continue to be tested on how much of the recent increase in inflation is “transitory,” but seems to be patiently waiting for additional evidence.
Global Sentiment Improves
The global economic outlook is starting to improve. The Bank of Korea’s May consumer sentiment survey just recently reached a three-year high. Moreover, Germany’s May income from operations survey business climate climbed to a two-year high. U.S. economic surprises are still tilting positive but now lag behind most other major developed economies, while growth expectations still stand out among developed markets.
Initial Jobless Claims Continue to Decline
According to the U.S. Department of Labor, just over 400,000 Americans filed for unemployment insurance last week, which was better than the Bloomberg consensus of 425,000 and another new pandemic low. Continuing claims were slightly better than consensus as well. The improvement in jobless claims over recent months is encouraging and has brought filings closer to pre-pandemic levels, but the U.S. economy still needs to create another 8 million jobs to get back to February 2020 levels.
Next week, the following economic data is slated to be released:
- Tuesday: Markit May Purchasing Managers Index, May Institute for Supply Management manufacturing report, April construction spending,
- Wednesday: Federal Reserve (Fed) Beige Book
- Thursday: Weekly initial and continuing claims, May Institute for Supply Management nonmanufacturing report, May Purchasing Managers’ Index composite, Q1 productivity and unit labor costs
- Friday: May hourly earnings and average workweek statistics, May manufacturing and nonfarm payrolls, May unemployment report, April durable and factory orders.
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References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results. All market and index data comes from FactSet and MarketWatch.
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U.S. Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
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