U.S. stocks finished the holiday-shortened trading week higher. The May jobs report pointed to an improving labor market; however, the rate of advancement is likely not rapid enough to compel the Federal Reserve to speed up its timeline for tapering bond purchases and increasing short-term interest rates. AMC Entertainment took another turn as the “meme stock” of choice, rising and falling several times in heavy volume. A cyberattack again targeted a vital U.S. interest, as the world’s largest meat processor (JBS) fell victim to a ransomware attack.
For the week, the S&P 500 Index finished up 0.6%, while the Dow Jones Industrial Average rose 0.7%. Year to date, the S&P is up 12.6%; the Dow has gained 13.6%. Weekly first-time unemployment claims totaled 385,000 – falling below 400,000 for the first time during the pandemic – while continuing claims rose to 3.77 million. In an improvement from April’s figures, the U.S. May jobs report indicated that U.S. employers added 559,000 workers last month. The unemployment rate dropped to 5.8%. It’s worth noting, however, that this decline was at least in part due to the labor participation rate falling to 61.6%. We believe that the total of all employment data continues to reflect a labor market in an uneven transition from pandemic lows back to full employment, and that the Federal Reserve will maintain its accommodative stance. The Fed’s positioning will likely change only when the unemployment rate approaches pre-pandemic levels and evidence of wage inflation begins to appear.
Expectations for global 2021 GDP growth remain strong. The Intergovernmental Organisation for Economic Co-operation and Development (OECD) raised their estimate for global growth in 2021 to 5.8%, citing improving vaccination efforts and sustained government fiscal support as reasons for the improved outlook. The J.P. Morgan Global Manufacturing PMI (Purchasing Managers Index) reached its highest level since April 2010; businesses surveyed for the index expressed optimism that the manufacturing sector will continue to expand over the next 12 months.
Stocks have recently traded in a narrower range, which is not uncommon after a period of strong growth like we’ve seen over the past year. Most of the strong economic news coming to fruition has been priced into stocks for some time. With the understanding that diversification and asset allocation remain important in portfolio construction and maintenance, we believe stocks are still relatively more attractive than bonds and could advance further over the next 18 months – albeit with potential for volatility as the recovery progresses. In our opinion, the largest potential roadblocks for stocks are rash Federal Reserve policy changes, any sizeable slowdown in global growth, and (of course) unforeseen problems regarding vaccines or Covid-19 variants.
As always, please contact us with any questions. We are here for you every step of the way.