Week in Perspective: A Rocky Start, but Strong Finish [15-May-21]

The stock market finished the week in negative territory, but it could have been a lot worse after hot inflation data upset the market mid-week. The Nasdaq Composite (-2.3%) and Russell 2000 (-2.1%) were this week’s losers with losses over 2.0% while the S&P 500 (-1.4%) and Dow Jones Industrial Average (-1.1%) declined closer to 1%.

Through the first three sessions of the week, the Dow was down 3.4%, the S&P 500 was down 4.0%, the Nasdaq was down 5.2%, and the Russell 2000 was down 6.0%. Over the next two days, the Dow gained 2.4%, the Nasdaq gained 3.0%, the S&P 500 gained 2.7%, and the Russell 2000 gained 4.2%.

The horrible start was attributed to negative momentum in the growth stocks, rotational factors, and a noticeably hot Consumer Price Index (CPI) report on Wednesday. The m/m changes in consumer prices exceeded expectations, and when looking at the last six months to exclude easy base effect comparisons, total CPI was running at an annualized pace of 5.0%.

Investors used the weakness as an opportunity to buy the dip with a little help from several factors:

• A retracement in long-term interest rates, signaling that the Treasury market wasn’t concerned about inflation even after receiving additional hot inflation data apart from the CPI report.
• Apple (AAPL) reclaiming its 200-day moving average (123.28) and the S&P 500 respecting its 50-day moving average (4064).
• The CDC saying fully vaccinated people can engage in most activities without masks.
• A view that the market was oversold on a short-term basis and was likely due for a bounce.

Eight of the 11 S&P 500 sectors still ended in negative territory, though, including the consumer discretionary (-3.7%), information technology (-2.2%), and communication services (-2.0%) sectors amid weakness in their mega-cap components. The consumer staples (+0.4%), financials (+0.3%), and materials (+0.1%) sectors closed higher.

It’ll be interesting to see how the growth/technology stocks perform moving forward when money has been flowing into the cyclical/value stocks on reopening/inflation expectations and analysts have been calling for sustained underperformance. Many growth stocks are down substantially from their peaks in February.

The 10-yr yield increased six basis points to 1.64% from last Friday’s settlement, but this was below the 1.70% settlement on Wednesday. Copper prices decreased 2% to $4.648/lb., representing many of the commodities that cooled off this week.

Week in perspective brought to you by Briefing.com