Weekly Market Commentary – 5/14/2021

-Darren Leavitt, CFA

It was a volatile week on Wall Street that saw the major US equity indices fall across the board.  Inflation fears were stoked by a hot Consumer Price Index reading and surging gas prices caused by a ransomware hack that shut down one of the largest oil pipelines in the country.  A continuation of the rotational trade out of high growth technology into cyclicals coincided with an uptick in interest rates.

For the week, the S&P 500 fell 1.4%, the Dow lost 1.1%, the NASDAQ led declines- shedding 2.3%, and the Russell 2000 gave up 2.1%.  Consumer Discretionary, Information Technology, and Communication Services sectors took the brunt of the sell-off while the Financials and Industrials fared a little better.  Inflation fears pushed Treasury yields higher and steepened the yield curve.  The 2-10 spread widen to 149 basis points.  The 2-year note yield ticked one basis point higher to 0.15%, and the 10-year yield increased by six basis points to close at 1.64. The 10-year traded as high as 1.70% during the week but was able to back off a bit from that level on a pull-back in commodity prices.  Gold prices increased by $7.10 for the week to close at $1837.90 Oz, while WTI prices inched higher by $0.39 to close at $65.33 a barrel.

Economic data for the week centered investor’s focus on inflation.  The headline CPI number increased 0.8% on a month over month basis, and the Core CPI, which excludes food and energy, rose 0.9% month over month.  Both exceeded consensus estimates by a wide margin and, when annualized, show some of the highest levels of price increase seen in a decade at 3.1% and 4.6%, respectively.  The three most significant price increases came from used cars, airline tickets, and hotel and leisure.   Inflation expectations also dampened the preliminary May reading of the University of Michigan’s Consumer Sentiment reading.  Respondents cited concerns about housing prices, gas prices, and the increase in new and used car prices.  The reading came in at 82.8 versus the consensus estimate of 90.2.  Retail sales for April were flat but came off a substantial March number that was revised from 9.8% to 10.7%, but investors seemed to dismiss the flat reading after coming off such a solid prior month.

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