May 6 Weekly Market Update

Stocks were a bit choppy this week. The markets struggled as investors digested the impacts that some near-term inflation was having on the economy. In the meantime, corporate earnings continued to be a bright spot.

While inflation concerns have been front and center for much of 2021, some real-world applications are already starting to take hold. One area where this is being felt most acutely is lumber. Lumber prices have been skyrocketing due to a confluence of COVID-19 driven supply disruptions, a labor shortage at lumber mills, and rising demand. As such, input costs for home builders have risen and subsequently so has the cost of single-family homes. Supply disruptions are also impacting the auto market. In this instance it is a shortage of semiconductors that is the culprit, causing many auto manufacturers to stall production and limit their sales.

Part of this week’s volatility stemmed from comments made by Treasury Secretary Janet Yellen. Early on Tuesday Yellen mentioned that interest rates may have to rise to help moderate the rapid growth of the U.S. economy that may be brought on by trillions of dollars of fiscal stimulus money. Put differently, rates might have to increase to help ensure that the economy does not overheat. Later that day Yellen moderated her comments by stating that she is not predicting an increase in rates nor is she recommending that Jay Powell and the Federal Reserve raise rates as she values the independence of their decision-making process. While markets did recover somewhat after the retraction, Yellen’s comments shook investor confidence.

While macroeconomic inputs have been testing investors’ mettle of late, corporate earnings reports continued to be strong. Of the companies that have reported earnings so far this quarter, 89% beat analyst earnings estimates, and 80% bested their revenue estimates. This is an astonishing degree of consistency. The strength of revenue and earnings growth in general has been notably strong as, thus far, Wall Street analysts have vastly underestimated the recovery in corporate America. Should that trend continue, it could bode well for the stock market in the weeks ahead.

Be safe and be well.

Market comments are based on the S&P 500 index which is unmanaged and cannot be directly invested into.

Past performance is no guarantee of future results. Investing involves risk and the potential to lose principal.

Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time and cannot be guaranteed. This commentary is provided for general educational purposes only and is not a recommendation of any kind or investment advice.