Investment Commentary – May 12, 2021
Year to Date Market Indices as of May 12, 2021

• Dow 33,851 (10.63%)
• S&P 4,085 (8.90%)
• NASDAQ 13,215 (1.53%)
• Gold $1,823 (-4.08%)
• OIL $66.06 (36.39%)
• Barclay Bond Aggregate (-3.02%)
• Fed Funds Rate 0-0.25 (0-0.25)

Marketwatch Opinion: You shouldn’t freak out over the CPI report — but this is what the Fed should do?

Here are some highlights in case you have a life and don’t drool over BLS reports:

  • The all-items index experienced its largest increase (4.2%) since September 2008.
  • The used-car index was up 10% in April, its largest increase since 1953.
  • The core index (ex food and energy) was up 0.9% in April, its largest increase since April 1982.

There will be a tendency in many circles to assume that this is the return of the 1970s or something like that. I think we need to relax and try not to overreact. Here’s why:

1) These figures are exaggerated by base effects. The price index troughed in May of 2020 at 256; so the year-over-year comps start looking exaggerated because of the COVID effect.
Basically, the economy was in crash mode last April and May so prices collapsed. And now the economy is booming so you have an exaggerated base effect where the numbers look high in large part because we’re comparing it to a severely depressed environment.
To get some sense of the future, we can start to think about how these figures might compare to today’s figure. Basically, you’d need a continued surge in some of these unusual items like used cars in order for a 4.2% rate of inflation to persist. That is a very unlikely outcome.

2) These figures are impacted by several acute prices. Used cars contributed 0.35% to core CPI. Add in hotels and car rentals, and almost half of the core CPI increase is caused by 5% of of the index. That’s not gonna continue.
For instance, look at used car prices in the last year. This surge is very unlikely to persist. We’re more likely to see this sort of index being a DRAG on prices a year from now.

News Around The web:

Opposite directions: It was an uneven week for the major U.S. stock indexes, as the Dow climbed nearly 3%, the S&P 500 added more than 1%, and the NASDAQ fell more than 1%, with most of its weekly decline coming on Tuesday. The Dow and the S&P 500 both set records, eclipsing highs set less than a month earlier.

Earnings surge: First-quarter earnings continued to improve, and S&P 500 companies are now expected to report a cumulative 49% increase over last year’s first-quarter results, according to FactSet. That’s up from the roughly 25% gain that analysts had forecast at the start of earnings season. As of Friday, results were in from around 90% of S&P 500 companies.

Vaccine approval: Although new COVID-19 cases in India continued to set daily records, there was progress on the vaccine front, as the World Health Organization (WHO) on Friday granted emergency-use approval for a vaccine developed by a Chinese state-owned drugmaker. The vaccine is the first developed by a non-Western country to win WHO backing.

Upcoming events

Thursday: Weekly unemployment claims, U.S. Department of Labor

Today in Stock Market History:

1927: With the German stock market up more than 160% in the previous 17 months, central banker Hjalmar Schacht is worried about irrational exuberance. He pressures Berlin’s biggest banks to issue a joint statement in which they announce that margin loans (which enable speculators to trade stocks with borrowed money) will be restricted. The next day, “Black Friday,” German stocks crash 11%, helping to trigger the early onset of economic depression.

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments. (Market Indices) (This day in Financial History) (Around the Web & Upcoming Events) (YTD Performance Chart)