U.S. stocks could not fully recover from a mid-week downturn and finished slightly lower this week. Corporate earnings and the labor market sustained their momentum – although stock prices have anticipated a significant economic recovery and foreshadowed these positive results during their recent rise. Inflation continues to influence the outlook for asset prices. Although notes from the most recent Federal Reserve meeting reinforce the Fed’s belief in the current “transitory” nature of inflation, they signaled a willingness to at least discuss tapering of their bond purchases (a likely precursor to raising short term interest rates) in upcoming meetings. Bitcoin again demonstrated the extreme volatility of cryptocurrencies this week, trading down more than 53% from its April 14th high before recovering slightly.
For the week, the S&P 500 Index finished down 0.4% while the Dow Jones Industrial Average fell 0.5%. Year to date, the S&P is up 10.6% while the Dow has gained 11.8%. Weekly first-time unemployment claims fell again to a pandemic low of 444,000 even as continuing claims increased to 3.75 million. In the wake of April’s worse-than-expected jobs report, at least twenty-one states have decided to end the extra $300 per week in federal jobless benefits early. In curtailing the extra amounts before they would normally expire in September, the belief is that more workers will return to the workforce – in turn accelerating the labor market’s recovery.
Economic data from Europe provides hope that they are finally climbing out from the effects of the pandemic. The Eurozone purchasing managers’ index (PMI) reading rose in May, indicating the strongest pace of business growth in three years. Data from the United Kingdom was even more promising, as retail sales increased 9.2% in April and the PMI reading was the highest recorded since 1998. Europe seems poised to experience the increased level of economic growth that China experienced earlier this year and the U.S. is currently enjoying.
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