- Equity Markets Slip
All three major equity market indices saw their worst weekly declines since February. Investors are fearing inflation, which is on the rise, could eat into corporate profits and push bond yields higher. Higher yields would cause higher borrowing costs and lower valuations. This is especially true for technology stocks which have high growth assumptions.
- For the Week…
The S&P 500 gave up last week’s gains and then some, falling 1.35%. The Dow Industrials fared a little better, down 1.08%. The tech-heavy Nasdaq Composite got hit the hardest and declined 2.32%.
- Inflation Runs Hot
Inflation rose much faster than expected in April. The consumer price index (CPI) increased 0.8% M/M (expectations of 0.2%) and the core CPI (ex food & energy) jumped 0.9% (0.3% forecast). The rise in core CPI last month was the strongest since 1982. Used car prices rose 10% last month. The CPI rose 4.2% Y/Y, while core prices are up 3% from a year ago.
- Most Sectors Decline
Eight of the S&P 500’s 11 major sector groups posted losses last week, with Consumer Discretionary (-3.67%), Information Technology (-2.22%) and Communication Services (-1.95%) falling the most. Consumer Staples (+0.40%), Financials (+0.32) and Materials (+0.08%) were able to eke out gains.
- Treasurys Yields Flat
Treasury bond yields were flat last week. The 10-Year Treasury yields began and ended the week at 1.63%. The 30-Year Treasury yields began the week at 2.32% and ended at 2.35%.
- Inflation rose faster than expected in April. Core CPI, which excludes food and energy, surged 0.9% versus March, well ahead of expectations (0.3%). The rise in core CPI last month was the strongest since 1982. Areas of the economy that are benefitting from reopening had outsized price gains last month, including car rentals (+16.2%), plane tickets (+10.2%) and hotels (+7.6%). While these price increases are tied to the reopening of the economy and are not sustainable indefinitely, there are risks for equity valuations and bond prices if inflation heats up faster than expected in the months ahead.
This report is created by Cetera Investment Management LLC. For more insights and information from the team, follow @CeteraIM on Twitter.
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The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.
The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry grouping (among other factors) designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.
The NASDAQ Composite Index includes all domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite Index is a broad based index.
The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe and is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.
The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.
The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe and is a subset of the Russell 1000 Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership.
The Bloomberg Barclays US Aggregate Bond Index, which was originally called the Lehman Aggregate Bond Index, is a broad based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government–related and corporate debt securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency) debt securities that are rated at least Baa3 by Moody’s and BBB- by S&P. Taxable municipals, including Build America bonds and a small amount of foreign bonds traded in U.S. markets are also included. Eligible bonds must have at least one year until final maturity, but in practice the index holdings have a fluctuating average life of around 8.25 years.
The Bloomberg Barclays US Corporate High Yield Index measures the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch, and S&P is Ba1/BB+/BB+ or below, excluding emerging market debt. Payment-in-kind and bonds with predetermined step-up coupon provisions are also included. Eligible securities must have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 6.3 years.
The Bloomberg Barclays US Municipal Bond Index covers the USD-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and prerefunded bonds. Eligible securities must be rated investment grade (Baa3/BBB- or higher) by Moody’s and S&P and have at least one year until final maturity.
The MSCI EAFE Index is designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada. The Index is market-capitalization weighted.
The MSCI Emerging Markets Index is designed to measure equity market performance in global emerging markets. It is a float-adjusted market capitalization index.
The Bloomberg Commodity Index is a broadly diversified index that measures 22 exchange-traded futures on physical commodities in five groups (energy, agriculture, industrial metals, precious metals, and livestock), which are weighted to account for economic significance and market liquidity. No single commodity can comprise less than 2% or more than 15% of the index; and no group can represent more than 33% of the index.
The S&P GSCI Crude Oil Index is a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark for investment performance in the crude oil market.
The S&P GSCI Gold Index, a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark tracking the COMEX gold futures market.
The U.S. Dollar Index is a weighted geometric mean that provides a value measure of the United States dollar relative to a basket of major foreign currencies. The index, often carrying a USDX or DXY moniker, started in March 1973, beginning with a value of the U.S. Dollar Index at 100.000.