U.S. stocks rebounded this week to finish higher, propelled by improving employment and vaccination reports while overcoming concerns about rising inflation. The bellwether Dow Jones Industrial Average celebrated its 125th anniversary this week as a barometer for American stocks. Although it tracks a narrow cross-section of 30 companies, the Dow carries significant emotional and historical weight for investors. The CDC reported this week that more than half of American adults have now been vaccinated against COVID-19, with nearly 130 million people age 18 and older completing the protocol since December.
For the week, the S&P 500 Index finished up 1.2%, while the Dow rose 0.9%. Year to date, the S&P is up 11.9%; the Dow has gained 12.8%. Weekly first-time unemployment claims again hit a fresh pandemic low of 406,000, and continuing claims decreased to 3.64 million. There is still room for improvement. More than 8 million job openings remain in the U.S. as employers’ demand for labor have risen as reopening efforts accelerate. New home sales figures from April showed a 5.9% reduction from March as rising sales prices and higher material costs appeared to slightly temper demand. Strength in both business and personal spending continued. Business purchases of equipment reported a 13.4% (annualized) increase in the first quarter while consumer spending rose 11.3% (annualized) during the same period.
A popular measure of inflation, the Personal Consumption Expenditures (PCE) price index, rose another 0.7% in April, as consumer demand for goods and services remained strong. We continue to believe that inflation will fluctuate while supply-demand imbalances remain in the economy, but should subside in the second half of the year. A sizeable portion of inflation is currently concentrated in a handful of areas: price increases for new and used cars, hotel rooms, airfare, and restaurant dining.
We believe it is still important for investors to practice asset allocation and global diversification. However, we continue to look for opportunities to tilt into certain market segments. Our investment team has increased our exposure to small- and mid-sized company stocks, as well as traditional value companies (quality stocks that trade for less expensive prices than the traditional growth names), based on their increased attractiveness during this period of higher economic growth. We constantly evaluate our positioning and are able to adapt as conditions warrant.
As always, please contact us with any questions. We are here for you every step of the way.