The Bottom Line
● A big stock rally on Friday couldn’t reverse the losses incurred Monday through Wednesday. The Cboe VIX Volatility Index surged past 28 on Wednesday before falling back under 19 on Friday as the market rebounded.
● Both consumer and producer inflation accelerated much faster than expected and sent stock prices lower and bond yields higher. The S&P 500 fell ‐1.4% and the Nasdaq fell ‐2.4%, while the yield on the benchmark U.S. 10‐year Treasury note rose +0.05% to 1.63%.
● The employment picture continues to improve as weekly jobless claims fell to 473,000, a new pandemic low, and monthly job openings soared to a record 8.123 million.
Inflation fears sparks equity selloff
Global equities were down for the week after inflation accelerated much faster than expected, sparking a broad market selloff that set the S&P 500 back ‐1.4% for the week. For the technology sector, the largest sector in the S&P 500, the downturn was particularly pronounced, as it fell ‐2.2%. The tech‐heavy Nasdaq was down ‐2.1%, its fourth straight weekly decline. The inflation scare came with the April Consumer Price Index (CPI) accelerating at its fastest pace in since 2008, up +4.2% from last year, and the Producer Price Index (PPI) rising +6.2% for the last 12 months, which was the largest increase since the data began in 2010. On Wednesday the S&P 500 and the Nasdaq were down ‐4%and ‐5%, respectively, for the week but a big Friday rally helped limit the week’s damage. The Cboe VIX Volatility Index spiked as high as 28.4 before falling back to 18.8 by the week’s close. The balance of the week’s economic data came in below expectations reversing a weeks‐long trend that saw largely better than expected results. Besides the higher than expected inflation results, retail sales stalled unexpectedly and consumer sentiment was softer than forecasted. On the plus side jobless claims fell more than expected.
Digits & Did You Knows
BE CONTRARIAN — The last 7 times that the S&P 500 index had a negative total return over a trailing 12‐month period, it rebounded each time with a positive total return of at least+15% over the next 12 months. The 1‐year average total return of all 7 comebacks is +27.6%. The last example was when the S&P 500 fell ‐7.0% (total return) for the 12 months ending 3/31/20 but bounced back with a +56.4% total return for the 12 months ending 3/31/21 (source: BTN Research).
NEW HOMES — 103,700 new single‐family homes began construction in the United States in March 2021, the highest monthly total reported nationwide since June 2007 (source: Census Bureau, BTN Research).
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