Market Recap: May 2021

June 03, 2021
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Market commentary

With economic reopening happening at a growing pace, the pent-up demand among consumers has not only driven activity and growth, but also helped to stoke inflationary pressures. Consumer confidence remained strong in April at 117.2, yet short of pre-pandemic levels, and personal consumption expenditures continue to grow. However, evidence of inflation abounds, with PPI ex-Food & Energy up 0.70% for April vs. 0.30% expected, and CPI ex-Food & Energy was up 0.90% for April vs. 0.30% expected. Gasoline prices continue to climb as strong U.S. demand and policy-driven reductions in domestic production combine to bolster oil prices. Lumber prices have risen 124% in 2021 amid persistent demand for building materials. With a growing lack of new cars, attributed to a computer chip shortage, used car and truck prices rose by 10% in April. Compounding the inflationary fears and adding to concerns about future activity is a weakening employment picture. April manufacturing payrolls dropped by 18k, much worse than the expected rise of 70k. Similarly, nonfarm payrolls were expected to rise by 975k in April but only achieved a 266k increase. Subsequently, the unemployment rate rose slightly in April to 6.1%. Indeed, cracks may be forming in the rock-solid consumer, and their ability to continue to drive recovery, as consumer sentiment fell sharply in May, falling from 88.3 in April to 82.8 in May — the lowest level since February.

 

Equities Indices May 2021

Equities

Despite the somewhat concerning economic conditions, stocks generally continued their march higher in May. Investors remain bullish on the long-term prospects for growth and profitability that economic reopening might provide. Foreign equity markets led stock performance for the month, with the EAFE index returning 3.34% and emerging markets posting 2.34% for May. Value stocks also continued to outperform their growth counterparts, with the technology and growth heavy NASDAQ delivering negative returns during May. These reversals of the past few years’ trends clearly illustrate the benefits of maintaining a well-diversified portfolio. Despite a weaker return in May, small-cap stocks, as represented by the Russell 2000 index, still led YTD returns at 15.30%.

 

Fixed Income Indices May 2021

Fixed income

Treasury yields appear to have plateaued for now, with both 2-year and 30-year issues declining by 2 bps in May, ending the month with yields of 0.14% and 2.28%, respectively. Intermediate maturities declined a touch more, with the 10-year Treasury benchmark falling to 1.59% from 1.63%. These slightly lower rates led to mostly positive performance results for the month, as bond prices and yields move in opposite directions. Capitalizing on the equity market strength and the resulting tighter spreads, investment-grade corporates led fixed income performance in May with a 0.70% return. The mortgage-backed securities (MBS) segment lagged the market, posting a -0.26% return for the month.

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