Week of May 17, 2021

The U.S. equity markets just came off one of the volatile weeks of 2021 that saw the S&P 500 fell 4% through midweek on increasing inflation fears.  This benchmark eventually ended the week down only 1.4% after powerful rallies in the market last Thursday and Friday.  The tech-heavy NASDAQ, which got hot particularly hard by inflationary pressures losing 5% by midweek, dropped 2.3% by weeks’ end.  The Dow dropped 3.4% Monday through Wednesday, recovered to lose only 1.1% on the week.  All three benchmarks posted their worst week since February 26.

Worth noting, all but three sectors of the S&P 500 finished the week in the red.  Consumer discretionary stocks had the largest percentage drop of 3.7%, followed by technology declining 2.2%.  On the upside, consumer staples gained 0.4%, followed by an increase of 0.3% in financials and 0.1% in materials.

The Consumer Price Index (CPI) jumped 4.2% in April (year-over-year), the fastest rate since 2008.  This report intensified investors’ fears that the federal reserve will be able to hold the line, as promised, on near 0% interest rates and massive asset purchases rattled the markets.  The Fed releases the minutes from its April meeting this Wednesday.

“Not only are (last) week’s events a warning sign of how uncomfortable inflation prints can become but also a warning shot of how overbought equity markets have become,” Nikolaos Panigirtzoglou, a managing director at JP Morgan, said in a note.