weekly market update

Thoughout most of the week, markets mostly looked beyond growing optimism of a debt ceiling deal, but stocks finished the week with notable strength as a bill passed through Congress and is headed to President Biden's desk.  In addition, Friday's jobs report for May beat expectations and investors celebrated rising odds for a soft economic landing.  However, while the S&P 500 is up about 10% year-to-date, the gains continue to be unusually narrow with just 7 stocks responsible for over 100% of the market gains (per Citigroup), while just 23% of stocks outperformed the S&P 500 in May.  Such weak market breadth alone is not a precursor of market weakness, but certainly we would like to see more stocks participate in the rally.

While debt ceiling headlines have largely dominated financial media airwaves, this week saw a number of encouraging developments on the inflation front.  An important survey of manufacturers (ISM) showed 85% of respondents noted input prices fell or remained unchanged.  First quarter labor cost growth was meaningfully revised down to 4.2% from 6.3% previously, and well below consensus expectations of 6%.  Goldman Sachs noted that its GS Supply Chain Congestion Scale moved back to “1”, a level not seen since February 2020, as supply chain issues have normalized.  On the international stage, Eurozone headline and core inflation also came in cooler than expected while the UN global food price index fell to a two-year low.  As a result, expectations of the Federal Reserve skipping an additional interest rate hike on June 14 have risen materially, providing a tailwind for risk assets into the weekend.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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