Watch the CPK Market Action Report: May 2021
April closes out with new record highs for stocks alongside another set of good economic data. Will stocks be able to continue their climb higher despite the record earnings reports and indications of widespread inflation or will investors start to take a more conservative approach with a concern that this could be as good as it gets for a while?
Watch the full 3-minute Market Action Report now:
May 2021
INTRO TAG
April closes out with new record highs for stocks alongside another set of good economic data. Will stocks be able to continue their climb higher despite the record earnings reports and indications of widespread inflation or will investors start to take a more conservative approach with a concern that this could be as good as it gets for a while?
The action starts, NOW!
INDEX PERFORMANCE RECAP – (Use the charts for each index as usual)
Cyclicals and Value stocks took a leadership role for most of the month. The Dow Jones Industrial was up 2.48% and the S&P 500 gained 4.72%. The Nasdaq also picked up 4.09%.
EQUITY UPDATE
April saw a pretty big rotation out of large cap growth stocks and into cyclical and value stocks. This was definitely reflected in their overall performance. As we look ahead to May, the environment could get a bit tricky. Many stocks just posted some of their best if not their all-time best quarterly earnings. While this is a good thing, it will most likely cause investors to pause and evaluate the sustainability of such growth for future earnings releases. Any miss on that guidance could have some serious implications for both the individual stocks as well as the overall market.
BOND UPDATE
April saw the 10 yr yield retrace its quick uptick to 1.74% back to a more modest 1.53% by the middle of the month. However, it has been slowly moving back towards that recent high and closed out the month at 1.63%. This is still a very important element that we need to keep a close eye on as any sharp movement back to the recent highs or higher would most likely deliver a repeat selloff like we saw at the end of March.
COMMODITY UPDATE
Oil grinded higher through the month closing at $63.52. However, it has been drifting in a range between $60 and $67 since the second half of February. If the demand outlook continues to increase and Covid concerns continue to moderate, the odds of a breakout to the top-side in the near future will become increasingly more likely.
Copper added to its gains for the year closing up 12.37% for the month. Further movement to the upside is expected as the evidence of a broader economic recovery continues to gain momentum.
Gold was able to break out of its February-March range bound levels by gaining 3.13% in April. The precious metal did experience some choppiness at the end of the month in lieu of solid economic data and Biden’s proposal to spend trillions more. Gold closed out the month at $1765.70/oz.
CURRENCY UPDATE
After several weeks of a dollar rally that took it to $93 at the end of March, the dollar nearly retraced all the way back to its value at the beginning of the year, closing out at $91.30. As long as the Fed continues its dovish rhetoric toward tapering and vaccinations continue to improve in the EU, it is expected the dollar will be range bound in the $91-$93 levels.
ECONOMIC UPDATE
The FOMC continues to remain steadfast in their desire to keep interest rates low and QE in place at the current levels until there is “Substantial” further progress in economic growth and the labor market. What this means is, inflation will continue to rise as many of you are already seeing in good you are purchasing.
GEOPOLITICAL UPDATE
As I mentioned earlier, President Biden announced he would be proposing another spending bill for approximately $4 trillion. His plan to pay for this includes a tax hike on capital gains for millionaires, crackdown on corporations and wealthy individuals to pay their fair share of taxes and a gas tax.
THE WRAP
As I said last month, there is a tremendous amount of money that has been pumped into the economy within a relatively short period of time and it appears there is an enormous amount more yet to come.
There will definitely be a day of reckoning when we have to pay this all back. Historically, this is accomplished by using one or a combination of two options. They are inflation and taxes.
Regardless of what the Fed is telling us, I would not be surprised if the bond market, which is very smart AND very powerful ends up forcing the hand of the fed to start talking about tapering sooner than it wants to. Just look around. Inflation is already playing havoc in many areas of the economy from corn and bean prices to land, boats, cars, housing, food, household goods, fuel… The list goes on and on and on. Additionally, the current administration is pushing to raise taxes on individuals, corporations and investments. Folks, buckle up because we are just getting started.
Whenever the Fed decides to disclose that it’s time to start talking or to take action to taper QE, I am confident that stocks will see some kind of negative reaction. To what extent, well, we will soon find out.
CPK FOCUS
For the month of May, our models continue to hold a 30% cash allocation.
Our broad focus remains on domestic and international equities.
On the Domestic front, our attention is still on Small Cap Growth, Small Cap Value, Small Cap Blend and Mid Cap Growth. Our favored sectors are Consumer Cyclical, Financials, Energy, Industrial, Basic Materials and Technology.
As for International Equities, our focus is on European Developed and Asia-Pacific Developed.
CPK DISCLAIMER
As a reminder, my current allocation is not a recommendation. Regardless of what happens next, investors like you need to have a simple and yet solid financial plan that reduces RISK, COSTS and TAXES while securing the necessary income you need to maintain your lifestyle throughout retirement.
If you don’t have a plan OR you’re not comfortable with the plan you have, call me today to get pointed in the right direction.
I’m Chad Kunc and that puts a wrap on the May 2021 Market Action Report. Thanks for joining me. It’s time for me to get back to the markets.
And that action starts, NOW!