(Please enjoy this updated version of my weekly commentary from the POWR Value newsletter).
Stocks ended Tuesday's session mixed after economic data revealed more signs of inflation. The Purchasing Managers Index rose to 62.1 for May, topping estimates of 61.5, which could signify inflation.
Oil futures also advanced to the highest level in more than two years, after OPEC+ reportedly forecast a 6 million barrel a day jump in demand this year. Increasing demand and less supply sent prices higher.
On Wednesday, the market rose a little at the close of trading. Investors have their minds focused on key employment figures at the end of the week. A strong report, which would indicate a rebounding economy, would also be considered inflationary.
In addition, in the afternoon, Patrick Harker, who heads the Federal Reserve Bank of Philadelphia, said it might be time to consider reducing the Fed's bond purchasing program.
The three major indexes fell slightly on Thursday on upbeat employment data and, as expected, the Fed's decision to start selling the corporate bonds it bought during the pandemic.
Figures on hiring in the private sector and initial claims data for unemployment benefits came in strong. The private sector added 978,000 jobs, while initial claims for unemployment benefits fell to 385,000, which was the first time below 400,000 since the start of the pandemic.
Stocks were up a little bit on Friday as the economy added a decent number of jobs in May. Nonfarm payrolls increased by 559,000 in May, which shows the recovery is intact but is less than economists had estimated. The weaker than expected number has stoked fears of a labor shortage and inflation, but investors didn't seem to mind too much.
This week started just where we left off last week, with minimal changes in the market. The S&P 500 and Dow Jones were down slightly, while the Nasdaq was up just a little. It seems investors are hesitant to jump into the market right now.
Market Outlook
As I've mentioned in the last couple of weeks, inflation is a concern, but we are still in a wait-and-see mode. The S&P 500 is only up 1% since the end of April. It has essentially gone nowhere. The daily returns have been low as well.
The volatility many investors were concerned with has suddenly disappeared. The market right has become boring. And this has me concerned.
While lower summer trading activity plays a role, the market not reacting to the Fed's taper announcement is strange, especially since we are in a period of generally higher market volatility.
This low volatility may remain for a little while, but I expected the higher volatility to return. Right now, though, it seems the data isn't enough to move the needle.
So, as value investors, we need to stay the course and find value when we can.
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All the Best!
David Cohne
Chief Value Strategist, StockNews
Editor, POWR Value Newsletter
SPY shares were trading at $422.72 per share on Tuesday afternoon, up $0.53 (+0.13%). Year-to-date, SPY has gained 13.43%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.
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