S&P 500 Hits All-time Highs as CPI Rises amid Looming Inflation Concerns

Market Recap Week ending 6.11.21

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The S&P 500 hit all-time highs on the week in very tight market action.  Cyclicals and US Treasury yields fell throughout the week on the notion that the economy has seen peak growth and peak inflation expectations.  A strong CPI print and continued strong data on the labor market seemed to be dismissed by investors.  Of note, a poll by Reuters that surveyed several economists found that most expect the Federal Reserve to announce its intention to begin tapering its bond purchasing program at the August or September meeting.  Interestingly the week’s muted trade coincided with the VIX, a volatility measure, falling to 15.65, the lowest level since February of 2020. 

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The S&P 500 gained 0.4% for the week, the Dow lost 0.8%, the NASDAQ finished 1.8% higher, and the Russell 2000 rose by 2.2%.  The US Treasury curve flattened. The 2-year note yield was unchanged at 0.15%, while the 10-year yield fell ten basis points to close at 1.46%.  The 10-year touched 1.43 in the week, which is the lowest level seen in three months.   Gold prices fell by $12.2 to close at $1879.40.  Oil prices gained 2% or $1.52 to close at $71 a barrel. 

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A peak growth narrative was noticeable in how equity sectors traded for the week.  Real Estate and Healthcare, along with Information Technology and Consumer Discretionary sectors, outperformed.  On the other hand, Financials, Industrials, and Materials underperformed.  It is worth mentioning that the Biotech sector was up 5.9% for the week partly on a controversial FDA decision to approve Biogen’s treatment for Alzheimer’s. 

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Economic news was headlined by the Consumer Price Index (CPI), which came in up 0.6% on a month over month basis, up 5% on a year over year basis, and an annualized rate of 5.8%.  The core number, which excludes food and energy, was up 0.7% at an annualized rate of 4%.  The preliminary June University of Michigan Index of Consumer Sentiment came in at 86.4 versus the estimate of 83.5 and better than the final may reading of 82.8.  Inflation still appears to be a concern for the consumer.  On the unemployment front, Initial Claims came in at 375k versus the estimate of 365k but were again trending in the right direction and the lowest level seen since before the pandemic hit.  Continuing claims were down by 258k to 3.499 million. 

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