Thursday, May 20, 2021
Leading indicators point to a global economy that continues to pick up speed
- Vaccine distribution has gradually allowed many countries to lift restrictions.
- The recovery, however, remains uneven, as some regions still struggle to contain the pandemic in the face of limited vaccine supply. Even for struggling regions, a rise in overall global demand is helping to spur economic activity.
- Our conviction increasingly tilts away from a focus on geography and more towards those areas of the market that might benefit from accelerating growth, inflationary pressure, and gradually rising interest rates, such as cyclically-oriented sectors and financials.
- Read more about our views in today’s LPL Research blog, available after 12p.m. ET.
U.S. markets open higher amid continued inflation concerns
- The Nasdaq Composite and S&P 500 Index opened over 0.7% and 0.4% higher respectively.
- European stocks rebound with the Euro Stoxx 50 up over 0.7% through midday trading.
- Asian equities finished mostly lower with the Hang Seng (Hong Kong) off by 0.5%.
Jobless claims beat expectations
- S. claims for unemployment insurance fell to 444k, a new COVID-19 low, surpassing the estimate of 450k (source: U.S. Department of Labor).
- Continuing claims came in marginally higher than consensus.
- The pace of the jobs recovery has slowed a bit in recent weeks but bigger gains lie ahead as more of the economy reopens.
Federal Open Market Committee (FOMC) meeting minutes released
- FOMC meeting minutes, covering the April 27-28 meeting, indicated that “a number of participants” believe that if the economy continues to recover at the current pace, it may be appropriate to talk about adjusting its bond purchase program at upcoming meetings.
- Additionally, “a couple of participants commented” that inflationary pressures would need to rise to “unwelcome” levels before they become “sufficiently evident to induce a policy reaction.”
- During a press conference immediately after the April meeting, Federal Reserve Chairman Jerome Powell noted that it was still too soon to begin thinking about removing monetary accommodation.
- The April meeting occurred before the disappointing April employment report as well as May’s higher than expected inflation report.
- The next FOMC meeting is June 15-16 when a new federal funds target rate (better known as the Dot plot) and asset purchase policy decision will be released by the committee.
Crude oil remains under pressure
- A broad market selloff leaves West Texas Intermediate (WTI) crude oil down 5% for the week and lower for a third-straight day.
- Concerns of inflation and Chinese demand remain in question.
- Significant progress surrounding the Iran nuclear deal (and potential increased supply) is front and center, as a final agreement may be reached soon.
- Even after the recent weakness, we expect eventual higher oil prices due to strong global demand, as restrictions ease and the global economy reopens.
The S&P 500 Index 50-day moving average continued to act as a key support level for the S&P 500. The broad benchmark gapped down at the open and was off about 1.6% at its low before rallying mid-morning to finish the day down just 0.29%. The index has now drifted lower for three consecutive session, but key support at the moving average has been holding. We continue to see upside for the index over the rest of the year but expect progress to be slower with more periods of consolidation.
Economy Picking Up Speed
LPL Research explains why inflation is making headlines and why investors should not be overly concerned. Learn more in this week’s Weekly Market Commentary
Inflation, Inflation, Inflation
On the LPL Market Signals podcast, Chief Market Strategist Ryan Detrick and Equity Strategist Jeff Buchbinder dive into the hotter than expected recent inflation data and explains why massive inflation down the road is unlikely.
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