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Market Commentary for the week ending May 8th, 2021

Summary

  • The April employment report disappoints with the economy adding just 266,000 new jobs.
  • Stocks were higher worldwide with international developed markets posting the strongest gains.
  • The tech-heavy NASDAQ Composite continues to lag behind in 2021.

 

This Week’s Performance Highlights

Market Indexes week ending May 8, 2021

Source: www.YCharts.com

  • Stocks were higher worldwide with large U.S. stocks, as measured by the S&P 500, gaining +1.2% for the week. The Dow Jones Industrials performed much better gaining +2.7% while the tech-heavy NASDAQ Composite was lower by -1.5%.
  • As the accompanying graph shows, the NASDAQ has been lagging behind the Dow since early March with the difference widening meaningfully in the most recent days. Year-to-date the Dow is higher by +13.6% while the NASDAQ has gained just +6.7%.

    DOW Jones Industrial Average and NASDAQ Composite year to date

    Source:www.YCharts.com

  • Small U.S. stocks continue to lead for 2021 but lagged behind large stocks for the week gaining just +0.5%.
  • Every sector in the market is higher in 2021 with Energy stocks leading by a wide margin up another +8.6% for the week and +43.0% year-to-date! Financials, helped by a higher interest rate environment, are so far the runner ups in 2021 up +28.7%.
  • International developed markets had a very strong week gaining an average of +2.9%. Eurozone markets did better than average with some of the biggest gains in the United Kingdom and Spain up +4.2% and +4.1% respectively. Japanese stocks were strong as well but trailed behind gaining +2.4% for the week. Year-to-date these developed markets are still behind U.S. markets but now only by a small margin.
  • Emerging markets on average posted a smaller +1.3% gain for the week. Brazil’s stocks were among the stronger performers up +6.9% while Chinese stocks, the biggest of the emerging markets, moved the opposite direction losing -0.5%.
  • Real estate stocks were among the few losers for the week down just -0.3% but holding onto a very impressive year-to-date gain of +18.6%.
  • Gold, in a sign of inflationary concerns, climbed +3.6% for the week but remains lower in 2021 by -3.8%. Commodities were also higher up +3.1% for the week and now +26.2% above 2020 year-end levels.
  • Bond prices climbed +0.3% resulting in yields continue to come off recent highs although the general consensus is that yields likely move higher longer term.

Interesting Numbers

-50.7%

The stock of Peloton Interactive, the very popular maker of exercise bikes and related content, was off more than -50% last week from its January 2021 high. This has been a tough ride for investors this year but the stock remains up more than +200% from its pre-pandemic levels. The company reported quarterly results last week with revenue up +141% compared to the same period last year but must recall its treadmill due to injuries.

Peloton Interactive (PTON)

Source: www.YCharts.com

$21,893,894

Last week David Swensen, the chief investment officer of The Yale University Endowment, passed away. He was a pioneer in the investment world with his use of alternative investments in a portfolio demonstrating the benefits of both improved returns and reduced overall risk. He became the chief investment officer at Yale in 1985 producing returns that topped nearly all other endowments. $1 million invested in the endowment in 1994 grew to nearly $22 million by 2020 compared to growth ofjust $4.7 million in a portfolio of 70% stocks and 30% bonds. I’ll be forever thankful to Mr. Swensen and his pioneering approach to investing.

26 year compounded returns thru june 2020

Economic Indicators

266,000

The April U.S. employment report disappointed adding just 266,000 compared to a revised lower 770,000 last month (originally reported at 916,000).Economists had forecast one million new jobs for the month.

The sector reporting the biggest gains was leisure and hospitality, adding 331,000 jobs, far outpacing all other sectors of the economy. Surprisingly many sectors lost jobs with the biggest being -79,000 in the professional sector.

In spite of jobs being added for the month, the unemployment rate ticked higher to 6.1% from 6.0% due to 416,000 people returning to the labor force (people actively seeking jobs again). This is good news for employers who are struggling to find works. As the accompanying graph shows, the number of job openings today are near the 2018 record highs and 355,000 above where they were prior to the pandemic.

Job Openings millions

Source:https://fred.stlouisfed.org/series/JTSJOL

According to the ISM Manufacturing Index, the manufacturing sector continues to expand at a brisk pace but slowed from the prior month with the index coming in at 60.7 versus 64.7 the month before. A reading above 50 indicates growth. Rising costs for supplies and shortages were among the issues slowing growth along with struggles finding needed employees. With the economy expected to remain hot for some time, it is expected the manufacturing sector will continue hot as well.

The services sector is also growing rapidly with the ISM Service Index reported at 62.7. This was just off the record 63.7 the month before and shy of economists’ expectations of 64.1. The strength is broad-based with 17 of the 18 sectors included in the report showing gains. Much like the manufacturing sector, access to needed supplies and rising costs are among the challenges the services sector is facing.

Factor orders were higher by +1.1%, an improvement from the decline the month before but shy of expectations. The month’s gains were helped by orders for big ticket items such as cars and construction equipment.

Upcoming Economic Reports

  • Retail Sales
  • Consumer Price Index
  • Producer Price Index
  • Industrial Production
  • Consumer Sentiment

Contact Mark A. Patton :