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Week in Review: May 21, 2021

Recap & Commentary

US markets ended the week little changed as investors focused on the prospects of higher inflation, first quarter earnings reports, a sharp decline in crypto currencies, and the release of the Fed’s April FOMC meeting minutes. Despite the ongoing debate about whether or not recent increases in inflation will prove to be structural or transitory, fixed income markets appeared to take a wait-and-see approach as evidenced by the 10-Year Treasury yield which finished the week down just 1 basis point from a week ago.

The release of the Fed’s April FOMC meeting minutes indicated inflation was a central topic. While a number of factors behind the rise in inflation were discussed, including labor shortages and supply chain bottlenecks, overall, the Fed continues to believe that the current rise in inflation will prove to be transitory. Interestingly, the minutes noted that “a number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.” That came as a mild surprise, as it was generally expected that the Fed would not broach the possibility of tapering until later in the year at the earliest.

As of Friday, 95% of S&P 500 companies had reported 1Q21 earnings. According to industry group Factset, thus far, 86% of companies have beaten their consensus earnings estimate, while 76% have exceeded their revenue estimate. Aggregate earnings growth for the quarter is expected be 52%.

Economic Bullet Points

Economic data for the week was highlighted by housing data which saw activity unexpectedly decline. Housing starts and existing home sales fell 9.5% and 3.7%, respectively.  Building activity was impacted by surging lumber prices and a shortage of land and labor. The National Association of Home Builders (NAHB) estimates the recent rise in lumber prices has increased the cost of the average new house by $36,000. In response, some builders have slowed their pace of building. In addition to lumber prices, builders have been faced with rising prices for other materials, including gypsum (dry wall) and copper.

Existing home sales fell for a third consecutive month in April but were up 34% Y/Y. Lack of supply was cited as the primary culprit behind the decline, as inventories remain near historic lows. The lack of supply combined with strong demand -homes listed for sale in April received an average 5.1 offers- resulted in the median existing home price hitting a new record of $341.6K.

Regional manufacturing surveys out of New York and Philadelphia fell slightly in April but remained at levels consistent with strong economic activity. Both surveys noted strong increases in prices, which set a new record high for the New York survey and rose to the highest level since 1980 for the Philly survey.

Weekly jobless claims fell 34K to 444K, a new pandemic low.

Of Note

The International Energy Agency (IEA) released a report titled Net Zero by 2050 containing over 400 milestones to help the world achieve the goal of being net carbon neutral by 2050. Among the many milestones, the report states that no new oil and gas fields should be approved for development after 2021.

Market Indices Week of 05/21

S&P 500-0.4%
Small Caps-0.4%
Intl. Developed0.9%
Intl. Emerging1.7%
Commodities-1.2%
U.S. Bond Market0.1%
10-Year Treas. Yield1.62%
US Dollar-0.3%
WTI Oil ($/bl)$64
Gold ($/oz)$1,880

The Week Ahead

  • New Home Sales
  • Pending Home Sales
  • PCE Inflation
  • Personal Incomes & Spending
  • Consumer Confidence
  • Durable Good Orders
  • 1Q21 GDP
  • Weekly Jobless Claims

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