THE WEEK ON WALL STREET
Optimism over the economic reopening and renewed enthusiasm for technology and other high-growth companies powered the stock market higher last week.
The Dow Jones Industrial Average rose 0.94%, while the Standard & Poor’s 500 climbed 1.16%. The Nasdaq Composite index led, picking up 2.06%. The MSCI EAFE index, which tracks developed overseas stock markets, added 0.46%.
Stock rallied on renewed confidence in the economic recovery, lower inflation worries, and rising comfort with Fed officials talking about the potential for easing of its monthly bond purchases. Technology, communication services, and reopening stocks were among the market leaders. Investor sentiment was buoyed late in the week by an encouraging jobless claims number and the unveiling of a Republican infrastructure proposal. A somewhat hotter-than-expected inflation indicator on Friday did nothing to dampen optimism as stocks added to their gains ahead of the three-day Memorial Day weekend.
JOBLESS CLAIMS REACH PANDEMIC LOWS
In a sign of further recovery in the labor market, the number of initial jobless claims fell to a pandemic low, continuing the downward trend in worker layoffs. New jobless claims totaled 406,000 for the week, well below the pandemic high of nearly 1.5 million, though still above the 2019 weekly average of 218,000.
THE WEEK AHEAD: KEY ECONOMIC DATA
Tuesday: Institute for Supply Management (ISM) Manufacturing Index.
Wednesday: Automated Data Processing (ADP) Employment Report.
Thursday: Jobless Claims. Institute for Supply Management (ISM) Services Index.
Friday: Employment Situation. Factory Orders.
THE WEEK AHEAD: NOTABLE COMPANIES REPORTING EARNINGS
Tuesday: Zoom Video Communications, Inc. (ZM).
Wednesday: Splunk (SPLK).
Thursday: Lululemon Athletica (LULU), Broadcom (AVGO), Docusign, Inc. (DOCU), CrowdStrike Holdings (CRWD).
The history of Memorial Day extends back to the Civil War when it was referred to as Decoration Day. We join all Americans in honoring those who died in the performance of their military service to protect the freedoms we enjoy today. These were remarkably brave men and women whose sacrifice will never be forgotten.
Watch the Fed. This market has largely been fueled by low interest rates and money printing. Both are still happening. The key is, if the market now expects these behaviors, what could happen that would change them?
A change in the cost of borrowing funds would ripple through the economy in multiple ways. It would affect the ability to access capital for many companies. And it would disrupt the economic pricing models many investors use to rationalize stock prices. Either way, the stock market stands to be impacted. Inflation really is a big part of the equation. If assets are inflating, it stands to reason stocks will inflate as well (and certainly history suggests this). The real question is, what kind of volatility might we experience along the way?