Weekly Market Summary 3 - 7 May 2021

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    Weekly Market Summary 3 - 7 May 2021
    Weekly Market Summary 3 - 7 May 2021
    10 May 2021

    Key Points

    • Wall Street mixed on investors' hesitancy due to various market narratives
    • Surprise US jobs numbers point to underlying labour and vaccination issues
    • Lack of market momentum may stem from wait for economic openings to catch up

    The major Wall Street indices ended the week (3-7 May) mixed with Dow breaking a two-week losing streak, closing 2.7% higher. The S&P 500 gained 1.2% while the Nasdaq Composite was 1.5% lower for the week. Trading for the week were largely sideways as investors grappled over the different strands of narratives.

    These include whether markets have run too far ahead of both sparkling and possibly also peaking economic data and earnings; whether inflation will pick up pace amid recent surge in commodity prices such as copper, lumber and corn futures; the impact of supply bottlenecks such as in semiconductor chips and the impact of the virus on economic re-openings given the mixed signals over the progress of vaccinations with vaccine hesitancy in the US on the rise despite concerns over more infectious virus strains.

    There might also have been some degrees of market discomfort among some investors over the strong gains since the start of the year and that perhaps it is time for a breather until economic activities catch up with the rich valuations.

    The persistent handwringing over whether the Fed may have to act ahead of schedule to rein its monetary policies to curb inflation may however be tempered by the latest job payrolls figures for April released on Friday which tipped the scales at just 266,000 – way below economists’ estimates that had ranged from 700,000 to even as high as 2 million. The figures for March was also revised downwards to 770,000 from 916,000.

    All that means with the big miss on the jobs front is that it will keep the Fed from easing its policies by tamping down on its massive bond-buying and keep interest rates near zero. Fed policymakers have maintained repeatedly that jobs growth will be the priority towards a sustained US economic recovery.

    The fear that outperforming tech and growth stocks will be impacted by higher rates was what led to some of the recent market hesitancy. Which was why the news of the lacklustre job numbers sent stocks like Microsoft, Tesla, Netflix, Alphabet and Apple bouncing back higher on Friday and helped to halve the week’s losses in S&P techs.

    The idea of poor jobs pick-up in a hot economy – whether it’s just a blip – seems to point to several underlying issues that need to be addressed before a full recovery is underway even if about a third of Americans are now fully vaccinated and another 40% getting their first doses.

    While there have been anecdotal reports of hiring difficulties in some locations with some employers putting the blame on generous federal unemployment benefits (which will expire in September), it may also boil down to unvaccinated workers being wary of getting back to work due to concerns of catching virus infections.

    Furthermore, fewer women were also seeking to re-enter the labour force as most US schools remain only partially open and the lack after-school care. Such problems may persist till the fall season given uncertainties over availability of summer camps. Some public transits are still running on limited capacity which affects some workers’ mobility.

    This week will see market pundits’ attention turning again to hints of inflation from the release of the producer price index (PPI) and more importantly the consumer price index (CPI), as well as jobless claims, retail sales, import prices, industrial production, business inventories and consumer sentiment survey.

    Some investors may be hoping that the April jobs data was a one-off aberration while scrutinising the CPI month-on-month changes and whether or not, they are transitory which had been the refrain of Fed policymakers.

    The US income tax filing deadline on 17 May may also be an excuse for some investors to take profits to avoid the proposed higher capital gains taxes targeted at wealthy individuals by the Biden administration.

    Overall though, despite some concerns raised over taxes and inflation, the positive backdrop from both monetary and more fiscal support remains intact with the potential multiplier effect from stimulus, while the slowdown in market momentum may have stemmed from some of the nagging issues already being factored in at current prices.

    Rotation into emerging markets including those in Asia will also likely be interrupted by resurgent virus waves which has led to travel bans and tightening restrictions including those of return of Phase Two measures in Singapore, reimposing of Movement Control Order (MCO) in several cities in Malaysia and likely the extension of state of emergency in urban centres in Japan.

     

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