The Bottom Line
● U.S. stocks rallied on the week but still couldn’t close above their May 7th all‐time high. The S&P 500 gained + 0.6%, but the small cap Russell 2000 led for the second straight week with an advance of +0.8%.
● On Friday, the Bureau of Labor Statistics reported that the Nonfarm Payrolls grew by +559,000, but missed expectations for a +675,000 gain. Still, the unemployment rate fell to 5.8% from 6.1%, better than forecasts of 5.9%.
● Gauges of U.S. manufacturing and services growth from ISM and Markit both showed better‐than‐expected growth, with records from the services sector. The OECD forecasts global growth of +5.8% this year.
Stocks up, but not quite enough…
U.S. stocks were up for the Memorial Day shortened week, with the S&P 500 gaining +0.6%, leaving it just 2.71 points from its May 7th all‐time high. The Russell 2000 small cap index was up +0.8%, while the tech‐heavy Nasdaq Composite gained +0.5%. Friday’s May Employment Report showed a solid acceleration in job growth, but at a pace that was below forecasts. Still the unemployment rate fell to 5.8%from 6.1%, better than expectations of 5.9%. The employment report seemed to cool concerns about the Fed reining in its extremely‐accommodative monetary policy. U.S. Treasuries rose following the employment report, with the yield on 10‐year note falling ‐7 basis points (bps) to 1.55%, down ‐4bps for the week. A Goldilocks economy might be in the making with employment improving, but at a cool enough pace to keep the Fed with its loose monetary policy, but allow economic growth at a hotter pace, like with the May manufacturing and services growth as reported by the ISM and Markit (detailed on the following page). Overseas growth looks good too, as the Organization for Economic Cooperation and Development said that the global economy is set to grow +5.8% this year and +4.4% next year.
Digits & Did You Knows
NOT A BIG NUMBER — At its peak, 3.7 million home mortgages (out of 52.4 million nationwide) had requested and received forbearance protection afforded through the CARES Act that was signed into law by President Trump on 3/27/20. As of March 2021, the forbearance mortgage total had fallen to 2.2 million, or just 4.2% of all mortgages (source: Federal Reserve Bank of New York, BTN Research).
DID YOU NEED IT? — 40.3% of college graduates aged 22 to 27 are working in jobs in which they are “underemployed,” i.e., a job that typically does not require a college degree. Historically, 33.5% of college grads are “underemployed” (source: Federal Reserve Bank of New York, BTN Research).
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Source: Bloomberg. Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange‐traded funds recommended by the Prime Capital Investment Advisors. The performance of those funds may be substantially different than the performance of the broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High‐YieldBond(iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 ValueETF);MidGrowth(iSharesRussell Mid‐CapGrowthETF);MidValue (iSharesRussell Mid‐Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares U.S. Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by: 30% U.S. Bonds, 5% International Bonds, 5% High Yield Bonds, 10% Large Growth, 10% Large Value, 4% Mid Growth, 4%Mid Value, 2% Small Growth, 2% Small Value, 18% International Stock, 7% Emerging Markets, 3% Real Estate.
Advisory services offered through Prime Capital Investment Advisors, LLC. (“PCIA”), a
Registered Investment Adviser. PCIA doing business as Prime Capital Wealth Management
(“PCWM”) and Qualified Plan Advisors (“QPA”).
© 2021 Prime Capital Investment Advisors, 6201 College Blvd., 7th Floor, Overland Park, KS 66211.
that jumped +26.6%. Gains like those, even off the extraordinarily low bases from the depths of last year’s COVID lockdowns, are bound to create inflation concerns. U.S. stocks pulled back more than ‐4% from the May 7th all‐time highs in both the second and third weeks of the month, and VIX volatility spiked to about 28 and 26 on each of those declines. But in the end the bulls took the victory as investors pushed aside the inflation fears in favor of recovery optimism. The S&P 500 rose +0.7% to post its fourth consecutive positive month, and sixth of the past seven. The small‐cap Russell 2000 index, which is more leveraged to the economic reopening, posted its eighth straight positive month for the first time since 1995.
Importantly, vaccination rates in Europe have picked up after a relatively slow start. That has helped Eurozone economic sentiment improve for four straight months and hit its highest level since 2018.The COVID crisis in India has also made much needed progress with over 190 million vaccines so far administered–only behind the totals of US and China. As a result, those economies are also rebounding nicely. As seen in the chart above, both developed and emerging international PMIs are rising and are well into expansion levels (above 50). The MSCI EAFE Index gained +3.3% in May, outperforming U.S. stocks for the first time in 2021.