Stock Market Insights

The vaccine rollout and the reopening of more businesses led both the U.S. and global economy to grow considerably in April. The U.S. economy continues to ride the huge wave of stimulus money that was pumped into it during the height of the pandemic to the detriment of higher consumer prices. These higher prices/inflation around the world make investors fear that the Fed and other central bankers will need to tighten monetary policy to combat the global inflation which could shock the equity markets. As of May 21st, the S&P 500 has been down since setting a new all-time high on May 7thof this year. The current volatility signals investors are concerned about the weaker-than-expected April employment report and the inflation fears.

Though the equity markets are high in regards to their earnings, we don’t see the latest sell-off as the beginning of a major decline. We also don’t see investors deploying the “sell in May and go away” strategy where investors sell their equity holdings in late Spring and invest again in the Fall because there isn’t a high percentage of companies trading below their 50-day or 200-day moving averages. Equity declines are being led by small-caps, growth, consumer discretionary, and technology sectors. Though technology, a leading sector out of a recession, is generally weak during times of inflation.

Strong earnings reports from the major retail companies show the U.S. consumer remains healthy and has the cash to spend. The increasingly tight housing market is causing some analysts to grow concerned this could negatively affect the markets if it continues very long. One positive note is that investors reacted favorably on May 13 when the CDC ruled that vaccinated people could stop wearing masks in most places signaling there may be more gas in the tank for the market to benefit from pandemic-related businesses reopening.

Overall, the markets seem to be wrestling with the enthusiasm of global economic recoveries as vaccines continue to roll out and increasing inflation fears. A major question yet to be answered is if the equities benefit from the recovery has already been priced into the markets.

Have a blessed week!

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