PAS Weekly Commentary

Good performance from not only stocks but also bonds

The stock market had all‐around good performance from the large‐caps, mid‐caps, small‐caps, and even the micro‐caps. Risk assets appeared to draw support from the calmness of the Treasury market, which staved off pestering inflation concerns and accompanying valuation concerns.

The Nasdaq Composite (+2.1%), Russell 2000 (+2.4%), and iShares Micro‐Cap ETF (IWC, +3.3%) rose more than 2.0%. The S&P 500 (+1.2%), Dow Jones Industrial Average (+0.9%), and S&P Mid Cap 400 (+1.4%) each advanced closer to 1.0%.

From a sector perspective, the consumer discretionary (+2.2%), communication services (+2.5%), information technology (+1.6%), and real estate (+2.1%) sectors finished atop the leaderboard. Conversely, the utilities (‐1.6%), health care (‐0.7%), consumer staples (‐0.4%), and energy (‐0.02%) sectors closed lower.

Highlighting some of the economic data, which should help explain the relative strength in the Treasury market (the 10‐yr yield declined five basis points to 1.58%):

  • New home sales declined 5.9% m/m in April to a seasonally adjusted annual rate of 863,000 (Briefing.com consensus 980,000)
  • The Conference Board's Consumer Confidence Index dip 0.3 points to 117.2 in May (Briefing.com consensus 118.0)
  • Durable Goods Orders unexpectedly decreased 1.3% m/m in April (Briefing.com consensus +0.8%)
  • Personal income declined 13.1% m/m in April (Briefing.com consensus ‐15.0%), as the total of stimulus payments made was greatly reduced from March.

The data supported the thesis that economic growth rates are peaking, which in turn would suggest inflation rates are also peaking. The latter was corroborated by longer‐dated Treasury yields moving lower (not higher) to the following inflation news:

  • The PCE Price Index ‐‐ the Fed's preferred inflation gauge ‐‐ was up 3.6% yr/yr in April
  • The expected year‐ahead inflation rate was a record 4.6% in the final May reading for the University of Michigan Index of Consumer Sentiment
  • Costco's (COST) CFO said, "inflationary factors abound" and estimated that overall price inflation at the selling level is in the 2.5‐3.5% range, or above prior expectations.

The question that remains is will inflation really be as transient as the Fed expects, especially when additional fiscal stimulus appears to be on the horizon? Senate Republicans confirmed a $928 billion infrastructure counteroffer to the Biden administration's $1.7 trillion American Jobs Plan while the White House confirmed a $6 trillion budget for FY22, which would include both the American Jobs Plan and American Families Plan.

The Treasury market thinks so.

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Past performance is not a guarantee of future results. Indices are unmanaged and one cannot invest directly in an index. Diversification does not guarantee investment returns and does not eliminate the risk of loss.

Data and rates used were indicative of market conditions as of the date shown and compiled by Briefing.com. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security. S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market. Each company’s security affects the index in proportion to its market value. NASDAQ Composite Index is a market value-weighted index that measures all NASDAQ domestic and non-U.S. based common stocks listed on the NASDAQ stock market. Dow Jones Industrial Average is a widely used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue chip stocks, primarily industrials, but also includes financial, leisure and other service-oriented firms. Russell 2000 Index measures the performance of the smallest 2,000 companies in the Russell 3000 Index of the 3,000 largest U.S. companies in terms of market capitalization. MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.

Park Avenue Securities LLC (PAS) is a wholly owned subsidiary of The Guardian Life Insurance Company of America (Guardian). PAS is a registered broker/dealer offering competitive investment products, as well as a registered investment advisor offering financial planning and investment advisory services. PAS is a member of FINRA and SIPC.

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2021 - 122047(Exp. 9/21)

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