Inflate This! | May 14, 2021

AUTHOR: Jason J. Roque, CFP®, APMA® TITLE:       Investment Adviser Rep – CCO TAGS:   S&P 500

Markets shed weight on inflation data last week, recovering ground late. What caused this swing?


Monday’s activity was very much still a reaction to the jobs report released the prior Friday. For most of the day markets floated near the highs only to shed value late. Focus shifted to potential supply constraints as a result of the colonial pipeline (CP) ransomware situation. With that shift in focus, the S&P 500 ended the day down 1%.


The S&P 500 shed another .87% on Tuesday. Job openings increased to 8.1M and the CP pipeline remained out of commission. That closure dominated momentum on the markets. Energy prices soared, but equities as a whole struggled.


Inflation data out Wednesday morning roiled the markets! Markets have been pricing in higher inflation as the re-opening trade has been under way for several months now. The repricing continued Wednesday. Core Consumer Prices (Inflation proxy) jumped from 1.6% in March to 3.0% in April. The strong reading raised concerns that we are about to undergo a wave of high inflation. The S&P 500 fell 2.14%, however the NASDAQ led the losses as 2.65%.


Initial jobless claims fell to a pandemic low of 473K. This upbeat reading seemed to allow calmer heads to prevail on Thursday as markets staged a rebound.


In a move that was clearly ‘bad news is good news,’ weak retail sales allowed markets to close higher. The weaker reading encouraged investors that perhaps April’s inflation reading will not be the norm going forward.


There is much focus on inflation right now. Understandably so, supply lines are choked off, employees are hard to come by, and people are starting to get out and spend money. From the semiconductor shortages, a depleted rental fleet from a sell off during the pandemic, to lumber bottleneck. Every where you turn there is evidence of price hikes. All that said, the inflation concerns do not appear to be long term. As workers come back, supply constraints will improve, and these price increases will likely prove temporary. A sign of prices adapting to current circumstances rather than long term inflation increases.

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