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Key Drivers for the Week of May 3, 2021
TIP – This is a 1-minute brief bullet-point summary. It is a tool that gives investors and financial a fast and simple list of what to watch for and talking points for the week.
- Strong data, earnings, vaccines, support upbeat outlooks, but pandemic risks remain
- U.S. employment report, ISMs expected to affirm robust growth into Q2
- Heavy earnings slate: Pfizer, Lowes, ConocoPhillips, Hilton, Berkshire Hathaway
- Fedspeak from Chair Powell, Kaplan, Daly, Evans, and Mester
- Canada jobs data headlines, trade, building permits, Ivey PMI; BoC’s Madklem speaks
- Japan on Golden Week holiday Monday-Wednesday; services PMI, auto sales due
- Central banks steady: RBA at 0.1%; Bank of Thailand at 0.5%; Bank Negara at 1.75%
- Asia slate also has China trade data, CPIs from Korea, Taiwan, Indonesia, Thailand
- ECB monthly report; Lagarde, Lane, Schnabel to confirm accommodation
- Eurozone retail sales, final PMIs expected to be firm, confirm the end of Q4/Q1 recession
- German retail sales, industrial production, trade, manufacturing orders due
- BoE expected on hold; upgrades to GDP and inflation in Monetary Policy Report
- UK lending, final PMIs; local elections with a focus on pro-independence Scottish parties
- Switzerland has employment, manufacturing PMI, CPI, and consumer confidence
Introduction & Quick Summary
The markets were choppy last week amid various cross-currents. But mostly it remained a battle between optimism over the recovery, reflected in the strong data and earnings numbers, and renewed worries over the pandemic with the disaster in India, as well as concerns over inflation.
Wall Street slipped lower on Friday, in part on portfolio rebalancing.
Weakness in Apple, Google, and Facebook weighed on the tech sector and knocked the NASDAQ -0.85% lower. The S&P 500 was off -0.72%, while the Dow slid -0.54%.
The drop in stocks and some month-end duration buying supported a modest bid in Treasuries, especially after rates crept up all week. The 10-year closed at 1.626% after testing 1.657%. The bond closed at 2.297% versus a high of 2.319%. The 2-year was fractionally richer at 0.158%.
Inflation: Bear Alert
This leads us to the key concern for investors and the markets which are inflation. Reading between the lines, the Fed and government are now admitting there is going to be an increase in inflation, but they don’t seem to be very concerned.
This weekend, Janet Yellen told NBC’s “Meet the Press” that those concerns are valid, but the government has the tools to prevent such issues from arising. “We will monitor that very carefully,” Yellen added. “We’re proposing that the spending be paid for. And I don’t believe that inflation will be an issue. But if it becomes an issue, we have tools to address it.”
However, Council of Economic Advisers chair Cecilia Rouse told Foxnews when she was asked about whether the trillions of dollars in new and proposed spending will lead to inflation.
“These are very serious concerns, and we know that coming out of an extremely deep recession that there are going to be bumps along the way. We expect that there is going to be supply chain disruptions. That will cause some transitory increases in prices,” Rouse responded.
Bottom line: ABS is very concerned about rising costs and supply chain disruptions that leading to inflation. We expect inflation to continue its bullish trend, but don’t think there is a hyperinflation risk until 2025. If the 10YR goes over 2%, we believe there could be a rapid increase in inflation and major market disruption. Investors should start to reposition their portfolios for a rate increase in 2022.
Data & Earnings
This will be another busy week of data, earnings, and other events that will keep the markets active. The jobs report on Friday highlights. Corporate earnings should generally remain upbeat. Treasury supply will be announced with the May refunding. Today’s slate is relatively quiet, however. It includes comments from Fed Chair Powell, though he will be speaking on community development and won’t really be discussing policy.
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