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Week in Review: May 28, 2021

Recap & Commentary

Equity markets ended the week higher as investors seemed to shrug off concerns about higher inflation, for now. Bond markets seemed to take a similar view, as evidenced by the 10-Year Treasury yield which declined 0.04% over the course of the week to end at 1.58%.

Big Oil arguably had a bad week. In Europe, a Dutch court ruled that Royal Dutch Shell must cut it’s CO2 emissions by 45% by 2030. The decision could have far reaching consequences for the entire industry. Exxon lost two board seats to Engine No. 1, a tiny hedge fund focused on reforming Exxon to improve both its financial discipline as well as its efforts to address climate change. Despite its small size, Engine No. 1 was able to gain the support of some of Exxon’s largest shareholders, including investment firm BlackRock. Finally, at Chevron’s annual meeting, a majority of shareholders backed a nonbinding proposal for the company to cut emissions from the end-use of its products.

President Biden unveiled his $6T budget for fiscal year 2022, which would focus on priority areas such as infrastructure, education, and public health. The budget also includes an 8.6% increase for military and discretionary spending. Aspirational in nature, the final budget to be passed by Congress will likely look significantly different.

Economic Bullet Points

Economic data was mixed relative to expectations, helping to provide at least some temporary relief from ongoing concerns about higher inflation.

Housing market data was generally weaker-than-expected, reflecting ongoing pressures the sector faces with respect to limited supply, strong demand, and supply chain shortages affecting everything from lumber and drywall, to labor and appliances. New home sales in April declined nearly 6% after rising over 7% in March. Compared to a year ago, the median price for a new home jumped 20.1% to $372.4K. Pending home sales, a measure of contracts for existing homes fell by 4.4% in April, after rising nearly 2% in March.

The Fed’s preferred measure of inflation, Core PCE, rose 0.7% in April, slightly higher than the expected increase of 0.6%. Compared to a year ago, core PCE rose 3.1%, the highest level since 1992. With the increase being largely in line with expectations and generally consistent with other recent inflation data, markets seemed to take the news in stride.

At the headline level, durable goods orders missed expectations, falling 1.3% in April. However, a closely watched measure of business spending which excludes defense spending and civilian aircraft orders, jumped 2.3%, well above the expected 0.7% increase.

Consumer confidence was largely unchanged in May as a jump in consumer’s views on current business and labor market conditions was offset by concerns about rising inflation.

Of Note

Five years after ending its one-child policy, China announced that it will now allow couples to have up to three children. The move comes in response to the country’s aging population and falling birth rate. Between, 2010 and 2020, China’s population aged 60 and older increased from 13.3% to 18.7%.

Market Indices Week of 05/28

S&P 5001.2%
Small Caps2.4%
Intl. Developed1.2%
Intl. Emerging2.3%
Commodities2.1%
U.S. Bond Market0.4%
10-Year Treas. Yield1.58%
US Dollar0.0%
WTI Oil ($/bl)$66
Gold ($/oz)$1,906

The Week Ahead

  • May Employment Report
  • ISM Manufacturing
  • ISM Services
  • Weekly Jobless claims

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