Market Commentary — May 10, 2021
Markets were mixed last week, with “go away in May” sentiment prevailing and former technology, capital gain winners being pruned in favor of value names. Value stocks outpaced their growth counterparts for the third week in a row.
Earnings season has winded down, with 442 of the 500 names in the S&P 500 now having reported. Earnings for the quarter surpassed analysts’ estimates by a wide margin, with analysts polled by FactSet currently expecting overall profits for the S&P 500 to have grown by over 49% on a year-over-year basis.
But just when you think you have this market figured out, stocks jumped to record highs on Friday after a disappointing jobs report showing only 226,000 jobs added in April. The weak number gave investors hope that the Fed’s policy of monetary easing may be needed longer.
We are dealing with a very generous unemployment system, with some estimates suggesting that 1 in 4 workers are receiving more from unemployment than they did when working.
Rising prices (aka inflation) are intensifying across many segments of the economy as supply shortages and logjams are compelling suppliers to raise prices. Price surges have been seen for raw materials from lumber to semiconductors to cotton, as manufacturers are scrambling to replenish the supply chain to satisfy the acceleration in demand from vaccinated consumers ready to shop with their stimulus-filled wallets.
The big question is, are these inflationary conditions temporary or likely to persist? A 3/4″ inch sheet of plywood from Home Depot is now selling for $60 versus $30 pre-pandemic- that is a 100% increase!
How is all this playing out in ETF land? It has been steady as it goes for ETF flows, with ETF.com reporting investors put $15.3 billion to work in ETFs, bringing YTD inflow totals to $335.7 billion up from $115.8 billion a year ago. The S&P 500, Financials, and International saw inflows, while the NASDAQ 100, S&P Dividend, and ARK’s Innovation ETF saw outflows.
We too are hedging our bets these days, with style-neutral core allocations and hedged interest rate exposure. Growth and technology and still the key drivers of the economic recovery, so we are being careful not to get whipsawed. We are also hedging against inflation, which we believe will prevail for the remainder of the year, as supply will not be able to keep pace with accelerating demand and rampant liquidity.
For all the moms out there, I think you will agree, being a mom is the hardest, but most rewarding job. A 2018 study by Welch’s concluded that the average mom works the equivalent of 2.5 full-time jobs or 98 hours per week. My guess is that time commitment was even higher during the pandemic with homeschooling and quarantine. So I hope Mother’s Day was extra satisfying this year! We all deserve it!
CEO and Co-Founder