Monthly Market Insights | May 2021
A succession of robust economic reports and a healthy start to the corporate earnings season helped spark an April rally on Wall Street.
The Dow Jones Industrial Average gained 2.71 percent while the Standard & Poor’s (S&P) 500 Index picked up 5.24 percent. The Nasdaq Composite led, climbing 5.40 percent.1
Signs of Recovery
Stocks raced ahead in the first half of the month, lifted by multiple signs of economic recovery, including an impressive jobs report, a jump in retail sales, and a pick up in housing starts.2,3,4
The accelerating pace of vaccinations helped investor sentiment in the U.S. However, overseas vaccine distribution struggles and the suspension of a COVID-19 vaccine also tested investors last month.
Coming into April, investors were anxious to see what first-quarter profit reports would hold. Corporate America did not disappoint.
S&P 500 companies appeared poised to report the third-highest net profit margin since tracking began in 2008. With 40% of S&P 500 index companies reporting, earnings-per-share growth (EPS) is now estimated to be 29.3%, well ahead of the 12.2% EPS growth rate that analysts had expected at the start of the year.5,6
Stocks mostly moved sideways in the second half of April, but they managed to hold onto the earlier gains, providing investors with a solid month of performance.
Every industry sector contributed to April’s positive results, with gains in Communication Services (+8.35 percent), Consumer Discretionary (+7.92 percent), Consumer Staples (+0.36 percent), Energy (+1.69 percent), Financials (+7.37 percent), Health Care (+3.50 percent), Industrials (+4.34 percent), Materials (+5.68 percent), Real Estate (+6.71 percent), Technology (+7.31 percent), and Utilities (+3.20 percent).7
What Investors May Be Talking About in May
Many investors appear guarded and concerned that the bull market may be tested in the near term.
The Fed’s position has been that any inflation will be transitory, requiring no change to its monetary stance. However, the biggest worry for investors is that the Fed may be misreading the current rate of inflation.
Transitory or Layered?
Some investors see inflation layered into the economy, from the prices of crops and lumber to metals and industrial products, and worry it may not be transitory.
As such, expect investors to look for the persistence of inflation over the next several months while focusing on the consumer price index, the producer price index, and specific supply inputs, such as the prices of semiconductors, raw materials, and base metals.
Overseas markets were lifted by signs of economic recovery in Europe, solid corporate earnings, and some progress by EU countries in vaccine distribution. For the month, the MSCI-EAFE Index rose 3.79 percent.8
European markets moved higher, with gains in the U.K. (+3.82 percent), France (+3.33), and Germany (+0.85 percent).9
Pacific Rim stocks were mixed, with Australia picking up 3.46 percent, Hang Seng gaining 1.22 percent, and Japan slipping 1.25 percent.10
Gross Domestic Product (GDP)
Economic growth surged, with GDP posting a 6.4 percent annualized growth rate in the initial reading of first quarter economic activity.11
Employers added 916,000 jobs in March, bolstered by a strong hiring rebound in the leisure and hospitality industry. It was the largest jump in new payrolls since August 2020. The unemployment rate dropped to 6.0 percent.12
Consumer spending surged in March, jumping 9.8 percent on the strength of strong sales in sporting goods, clothing, electronics, and restaurants and bars.13
Output by the nation’s manufacturers, miners, and utilities rose 1.4 percent.14
Housing starts rose 19.4 percent in March. On a year-over-year basis, housing starts were up 34 percent from March 2020.15
Existing home sales declined 3.7 percent. Inventory dropped 28.2 percent from a year earlier.16
Sales of new homes jumped by 20.7 percent from February and by more than 66 percent from last March, reaching levels not seen since 2006.17
Consumer Price Index
Prices rose in March, climbing 0.6 percent, leaving the year-over-year increase at 2.6 percent. The acceleration in the inflation rate was not unexpected as prices are coming off pandemic-muted levels.18
Durable Goods Orders
Durable goods orders increased by 0.5 percent in March. Excluding the volatile transportation sector, orders rose by 1.6 percent.19
The Federal Reserve announced that its current monetary policies would remain unchanged until the labor market has fully recovered and inflation met its goal of averaging 2 percent.20
"Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,” said Federal Reserve Officials in a prepared statement following the two-day policy meeting which ended on April 28.
"The sectors most adversely affected by the pandemic remain weak but have shown improvement. Inflation has risen, largely reflecting transitory factors,” the statement continued. “Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses."21
By the Numbers: May the 4th Be With You
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, or state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
Any companies mentioned are for illustrative purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, timeframe, and risk tolerance.
The forecasts or forward-looking statements are based on assumptions, subject to revision without notice, and may not materialize.
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. The S&P 500 Composite Index is an unmanaged group of securities considered to be representative of the stock market in general. The Nasdaq Composite is an index of the common stocks and similar securities listed on the Nasdaq stock market and considered a broad indicator of the performance of stocks of technology and growth companies. The Russell 1000 Index is an index that measures the performance of the highest-ranking 1,000 stocks in the Russell 3000 Index, which is comprised of 3,000 of the largest U.S. stocks. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark for the performance in major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.
The Hang Seng Index is a benchmark index for the blue-chip stocks traded on the Hong Kong Stock Exchange. The KOSPI is an index of all stocks traded on the Korean Stock Exchange. The Nikkei 225 is a stock market index for the Tokyo Stock Exchange. The SENSEX is a stock market index of 30 companies listed on the Bombay Stock Exchange. The Jakarta Composite Index is an index of all stocks that are traded on the Indonesia Stock Exchange. The Bovespa Index tracks 50 stocks traded on the Sao Paulo Stock, Mercantile, & Futures Exchange. The IPC Index measures the companies listed on the Mexican Stock Exchange. The MERVAL tracks the performance of large companies based in Argentina. The ASX 200 Index is an index of stocks listed on the Australian Securities Exchange. The DAX is a market index consisting of the 30 German companies trading on the Frankfurt Stock Exchange. The CAC 40 is a benchmark for the 40 most significant companies on the French Stock Market Exchange. The Dow Jones Russia Index measures the performance of leading Russian Global Depositary Receipts (GDRs) that trade on the London Stock Exchange. The FTSE 100 Index is an index of the 100 companies with the highest market capitalization listed on the London Stock Exchange.
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1. The Wall Street Journal, April 30, 2021
2. CNBC.com, April 2, 2021
3. CNBC.com, April 15, 2021
4. Reuters.com, April 16, 2021
5. FactSet.com, April 26, 2021
6. EarningsScout, April 30, 2021
7. FactSet.com, April 30, 2021
8. MSCI.com, April 30, 2021
9. MSCI.com, April 30, 2021
10. MSCI.com, April 30, 2021
11. The Wall Street Journal, April 29, 2021
12. CNBC.com, April 2, 2021
13. The Wall Street Journal, April 15, 2021
14. FederalReserve.gov, April 15, 2021
15. Reuters.com, April 16, 2021
16. CNBC.com, April 22, 2021
17. YahooNews.com, April 23, 2021
18. The Wall Street Journal, April 13, 2021
19. The Wall Street Journal, April 26, 2021
20. The Wall Street Journal, April 28, 2021
21. FederalReserve.gov, April 28, 2021
22. Britannica.com, April 19, 2021
23. Finance.Yahoo.com, December 31, 2020
24. RD.com, April 23, 2021
25. Polygon.com, 2021
26. ScienceNotes.org, August 1, 2020
27. Google.com, October 2020
28. Imagine.GSFC.NASA.gov, 2020
29. SolarSystem.NASA.gov, May 18, 2020
30. BBC.com, May 6, 2020