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.

The information in this Market Commentary is for general informational and educational purposes only. Unless otherwise stated, all information and opinion contained in these materials were produced by Foundations Investment Advisers, LLC (“FIA”) and other publicly available sources believed to be accurate and reliable.  No representations are made by FIA or its affiliates as to the informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. No party, including but not limited to, FIA and its affiliates, assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

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August 5th, 2019

Stock Market Selloff Deepens After Fed ReMarcs and Trade Negotiation Setback

As of this writing, stock Markets around the globe are taking a beating. The selloff began on Wednesday of last week in response to Federal Reserve Chairman Jerome Powell’s comments indicating that more rate cuts are not planned, and that last week’s 25 basis point cut was simply an “adjustment”. The next day, President Trump announced a planned 10% tax on all remaining untaxed Chinese imports. He stated that this is due to China’s lack of follow through on promised agricultural purchases from the United States. Despite the reason, Markets took this to be a serious setback in the ongoing trade fight with China, and stocks swooned. The selling continued Friday, resulting in the second worst week for stocks this year. Just yesterday, China responded with a devaluation of the Yuan and a prohibition of state-run businesses from buying U.S. agricultural products. Talk about fueling the fire. Today, stocks are down between 3% and 4% depending upon the sector and location.

To put the past four trading days into perspective, the S&P 500 is down more than 6.1%, the Dow is down 6.3% and the Nasdaq is down 7.8%. In response to the equity selloff, money is flowing into safe haven assets like gold and U.S. Treasury bonds. Treasury yields have dropped to the lowest levels we’ve seen since the summer of 2016. The 10-year is presently trading at 1.73%.

The trade situation is starting to feel like a real “war” with China is possible. This, coupled with continued weak economic data, warrants some real caution as we head into the most difficult stretch of the year. I stated previously that I didn’t see an imminent recession here in the U.S. as long as employment remains robust, but this type of trench warfare among the largest economies in the world has the potential to quickly change things. A test of our stock Markets’ 200-day moving average appears likely over the next weeks. Emerging and other developed Markets have already fallen below that critical juncture. Here at home, our Markets have fallen below it twice so far this year and quickly recovered. The third time we may not be so lucky.

At Cabana, we are currently in a trading blackout and plan to reallocate later in the week to more defensive positions should the selloff continue.


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