Weekly Market Update 05/24/2021

Inflation is becoming a concern for Wall Street, with April data on producer (wholesale) and consumer prices proving unsettling. Specifically, the Producer Price Index (PPI) rose 0.6% last month, or twice the projected increase, and 6.2% in the past year. Pressures also were building on the consumer side, as the Consumer Price Index (CPI) added 0.8% in April and 4.2% for the 12 months. These troubling reports, along with climbing oil prices, supply bottlenecks, and selective shortages (especially of gasoline after a pipeline’s operations were interrupted) have been rattling some heretofore complacent investors.

Are such price concerns transitory, as the Federal Reserve maintains, or something more serious? It is too early to be sure. So upcoming PPI and CPI data will be critical, as will housing prices and cost trends in manufacturing activity and home building (with lumber especially important here). Meanwhile, the higher inflation already seen, the heavy sums allocated for stimulus and relief payments, and the possible future spending on infrastructure projects likely will contribute to at least a moderate sustained increase in prices.

The next few weeks will be telling, both because of the release of new inflation figures, but also due to some key Federal Reserve issuances (such as the Beige Book economic summation). A mid-June Federal Open Market Committee meeting, coupled with periodic commentary from Fed officials, also will be scrutinized for a sense of where the bank stands on inflation and interest rates.

Meantime, the economy continues to ramble along, with most reports suggesting the business backdrop is neither too hot nor too cold. Highlights here include declines in jobless filings, stability in retail sales, and gains in industrial production.

Investors often are on edge, after months of unrelenting bullishness, with recent weeks seeing sharp selloffs, but also dramatic recoveries. All the while, equity prices continue near all-time highs, especially on the Dow and the S&P 500 Index.

Conclusion: Stock prices remain high, and uncertainties persist both domestically and globally. But with the economy still improving and first-quarter earnings quite reassuring, the risk of being out of the market exceeds that of being in it.

Source: Valueline.com