Market Commentary for the week ending June 5th, 2021
- Everything except gold was higher for the week as volatility continues to hover near post-pandemic lows.
- The economy added 559,000 jobs in May but employers are struggling to find needed workers.
- Bond yields continue to inch lower in front of a coming report on inflation.
This Week’s Performance Highlights
- Stocks were higher around the world helped by continues signs of economic strength and general enthusiasm by investors. At the close of the week large U.S. stocks, as measured by the S&P 500, were higher by +0.8% and now up +13.4% for 2021. The tech-heavy NASDAQ gained +0.6% and still lags year-to-date by a considerable margin up +7.2%.
- Small U.S. stocks were also up +0.8% adding to their big gain the week before but are still off their mid-March record highs.
- Volatility is hovering near its post-pandemic low but a look at the accompanying graph during the past 12 months (the right half of the graph) shows unexpected spikes can occur at nearly anytime.
Source: www.YCharts.com symbol ^VIX
- International markets outperformed the U.S. markets with developed markets gaining +1.3% led by both Japan and Australia while the Eurozone lagged.
- Riskier emerging markets rallied +2.7% helped by a surge in some smaller markets including Brazilian stocks up +9.1% followed by a +4.2% gain in South Africa. The Hong Kong market was among one of the few down for the week off -1.9% but still up +11.6% for the year.
- Real estate stocks and commodities, the two best performing assets classes in 2021, both added meaningfully to their gains this week up +3.5% and +2.1% respectively. Gold was the only asset down losing a fractional -0.3%.
- Bond prices continued to recover some of their 2021 losses up +0.3% for the week but still down -2.4% for the year. The yield on the 10-Year U.S. Treasury fell to 1.554% . A report that the Federal Reserve is going to sell some of its corporate bond assets generate nearly no reaction by investors.
Asset management giant BlackRock has its Geopolitical Risk Indicator designed to capture the market attention to our geopolitical risks such as U.S.-China relations, COVID-19 resurgence, and Gulf tensions. The index today shows a reading of -0.51 which is just shy of its recent 5-year low. This very low risk level is helping moderate volatility in the markets although any shock would almost certainly cause an instant spike in volatility and likely falling prices.
This one is personal. On Saturday my daughter Sydney raced in the Unbound Gravel 200 cycling race in Kansas. This is 206.2 miles of gravel and dirt roads on a bicycle! I had the privilege of serving as her support crew which was required by every rider to meet them at two stops along the route to provide food, hydration, and mechanical help. It’s a grueling race with only about half of the riders who start making it to the finish line. At 11:40 pm, 17 hours and 39 minutes after the 6:00 am start time, Sydney crossed the finish line. It’s a physical and mental challenge that I’m so proud she took on and accomplished and blessed that I got to be a very small part of.
The economy is hot but employers are struggling to find needed workers. In May 559,000 jobs were created bringing the unemployment rate down to 5.8% from last month’s 6.1%. The jobs growth was more than 100,000 less than expected but a sizable improvement over last month’s 278,000 new jobs.
Demand for nearly all goods and services is fueling the hiring boom that is occurring in particular in the leisure and hospitality sector which accounting for more than half the new jobs. Construction and retail sales were the only two sectors registering small declines.
The accompany graph shows that as of the most recent report there are a record number of job openings. It’s believed that continued concerns about the virus, lack of childcare options, and generous unemployment benefits are making some people hesitant to reenter the workforce.
Source: Bureau of Labor Statistics via www.YCharts.com
The services sector continues to expand at a record pace with the Institute for Supply Management service index accelerating in May coming in at 64.0 (any reading above 50 indicates growth) compared to 62.5 the month before. A tight labor market and supply-chain issues are hindering what would be even faster growth. A support report from Markit tells the same story.
The manufacturing sector is hot as well with the ISM Manufacturing Index at 60.5 in the most recent month which was also an improvement compared to the month before. Looking at the multiple components of this report shows an improvement in new orders but weakening in both the readings on employment and production given the lack of workers. Again, a separate report from Markit tells much the same story.
Motor Vehicle sales are extremely strong but fell in the most recent month to an annualized 17.0 million due to a lack of supply because of manufacturing challenges caused by a chip shortage. According to … the average growth in sales of the top 10 selling models is +36.9% year-to-date as illustrated in the accompanying table.
Initial weekly jobless claims fell once again to 385,000 compared to a revised 405,000 the week before. This is still elevated compared to pre-COVID but the lowest since the start of the pandemic.
Upcoming Economic Reports
- Consumer Price Index
- Consumer Sentiment Index
- Household Wealth
- Initial Jobless Claims