Story #1: US stocks rose in light trading.Stocks recorded solid gains for the week, bringing the large-cap S&P 500 Index to within roughly 0.5% of the all-time intraday high it established on May 7 and leaving it with a small gain for the month. Trading volumes were especially light, however, with Monday marking the fifth-lowest turnover in a non-holiday session since the pandemic began. The light trading volumes came in advance of the long Memorial Day weekend, with U.S. markets scheduled to be closed Monday, May 31. The major indexes were relatively steady for most of the week, most likely due in part to a lack of directional drivers.
Story #2: Growth stocks outperformed. Meme stocks came back with a vengeance. The technology-heavy Nasdaq Composite and small-cap Russell 2000 indexes performed best as growth shares handily outperformed their value counterparts. Facebook and Google parent Alphabet helped communication services stocks outperform within the S&P 500, and a rebound in Tesla boosted consumer discretionary shares. Meanwhile, “meme” stocks made a comeback after weeks of being silent. Retail investors pushed AMC stock which gained 1,150%, propelling company’s market value to a record $13bn. Stock has nearly tripled from quarterly earnings on May 6. AMC is now a large cap stock. AMC was the most traded equity in the world on Thursday with $13b, more than Tesla.
Story #3: Mixed signals on the Macro front. This week’s economic data reports sent conflicting signals. In the US, weekly jobless claims fell more than consensus expectations, to a new pandemic-era low of 406,000, and durable goods orders excluding the volatile transportation sector increased by 1% in April, also more than expected. On the downside, some regional manufacturing gauges came in lower than anticipated, although still indicating solid expansion. Consumer confidence data pulled back from recent highs, with many polled citing inflation concerns. According to the S&P CoreLogic Case-Shiller Index, average home prices in major metropolitan areas rose 13.2% in the year ended in March, up from a 12.0% annual rate the prior month and the highest rate of growth since December 2005. In Europe, the Ifo Business Climate Index for Germany rose to 99.2 in May—its highest level since May 2019—from 96.6 in April, as optimism about the economic outlook strengthened. The French economy slipped into recession in the first quarter, with a preliminary estimate of 0.4% growth revised to a contraction of 0.1% due to weaker-than-expected construction data.
Story #4: Here’s comes the $6 Trillion US stimulus.On Friday, Biden unveils $6 Trillion Federal Spending Blueprint. President Biden’s budget proposal charts his vision of an expansive federal government role in the economy and the lives of Americans, with big increases in spending on infrastructure, public health and education along with tax increases on corporations and the wealthy. Negotiations also continued on a new round of infrastructure spending, with Republicans unveiling a USD 928 billion counteroffer to President Joe Biden’s latest proposal of roughly USD 1.7 trillion.
Story #5: Fed officials stress that inflation pressures should prove temporary.Concerns about inflation resulting from supply chain pressures and the release of pent-up consumer demand may have also restrained the week’s gains. The Commerce Department reported on Friday that its core (less food and energy) personal consumption expenditure price (PCE) index increased 3.1% in the year ended in April, slightly above expectations and the biggest increase in nearly three decades—and well above the Fed’s 2% target for its preferred inflation gauge. Several Fed officials stated that they wouldn’t be surprised to see bottlenecks and supply shortages push prices up in the coming months but that much of those increases should prove temporary.
Story #6: Sovereign bond yields decreased.Fixed income investors appeared to be reassured by the Fed officials’ comments, with the yield on the benchmark 10-year U.S. Treasury note decreasing over the week. Core eurozone bond yields eased. Germany’s 10-year bund rallied early in the week, supported by dovish comments from European Central Bank policymakers, who said that they saw no evidence of sustained inflationary pressure and that winding down emergency bond purchases would be premature. However, yields abruptly rose toward the end of the week as U.S. Treasury yields dropped. Bond yields in peripheral European markets largely tracked those in the core. UK gilt yields were broadly flat after a turbulent week. They followed core markets lower early on but rose sharply after Vlieghe’s comments regarding the BoE possibly raising interest rates in the first half of next year if the economy recovers faster than expected.
Story #7: European equities gained. Shares in Europe advanced on continued affirmations of ultra-easy monetary policy and reports of a massive U.S. fiscal spending plan. The pan-European STOXX Europe 600 Index ended the week up 1.02%. The UK’s FTSE 100 Index ended roughly flat, in part reflecting the UK pound’s appreciation versus the U.S. dollar. The reopening of the economy and comments from Bank of England (BoE) policymaker Gertjan Vlieghe, who said the central bank could raise interest rates as soon as the first half of next year, helped the currency rise for a fifth consecutive week.
Story #8: Swiss walk away from EU trade deal.Switzerland abandoned talks on a framework trade deal with the European Union (EU) that would codify access to the single market because of differences over wages and immigration. The end of the seven-year talks means that existing treaties with the bloc’s fourth-largest trading partner might eventually lapse.
Story #9: China commodity crackdown.Commodities were broadly speaking higher in May, up for the 11th month of the last 13. Nevertheless, we have witnessed some weakness towards the end of the month as China would like to cap the rise of commodity prices. In an effort to reduce financial risks, Chinese policymakers promised zero tolerance for commodity speculation and further cracked down on cryptocurrency mining. Separately, Chinese regulators turned down applications to issue RMB 154 billion of asset-backed securities from various companies including fintech company Ant Group, according to domestic news portal Sina.com. The amount was twice the amount rejected in 2020 and reflects the government’s renewed focus on curbing financial risks.
Story #10: Gold and Silver gained as dollar weakened. In May, the Dollar was down for the second straight month, ending the period with its lowest monthly close since 2014 as large speculative net short dollar positions are being rebuilt. Meanwhile, Gold firmed above $1,900/oz for 1st time since January as weaker yields bolster appeal. Silver prices are back near recent highs.
Source: T Rowe Price, www.zerohedge.com