Market Looks Past Hot Inflation Report

Stocks finished the week mostly higher with the S&P 500 posting a third consecutive weekly gain and closing at a new all-time high.

June 14, 2021    |    By Michael Schwager

Performance for Week Ending 6.11.2021:

The Dow Jones Industrial Average (Dow) finished down 0.51%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) fell 0.21%, the Standard & Poor’s 500 Index (S&P 500) dipped 0.43% and the Nasdaq Composite Index (NASDAQ) gained 0.31%. Sector breadth was mixed with 6 of the S&P sector groups closing higher and 5 closing lower. The Real Estate sector (+1.95%) was the best performer while Financials (-2.38%) was the worst.

Index* Closing Price 6/11/2021 Percentage Change for Week Ending 6/11/2021 Year-to-Date Percentage Change Through 6/11/2021
Dow 34479.60 -0.80% +12.65%
Wilshire 5000 44618.15 +0.86% +13.08%
S&P 500 4247.44 +0.41% +13.08%
NASDAQ 14069.42 +1.85% +9.16%

*See below for Index Definitions

MARKET OBSERVATIONS: 6/7/21 – 6/11/21

Stocks finished the week mostly higher with the S&P 500 posting a third consecutive weekly gain and closing at a new all-time high. Prior to this week’s break-out to new highs, the S&P had been stuck in a trading range for the past several weeks as investors have had to weigh the economic reopening against risks of rising inflation. Late in the week, fresh data showed that consumer sentiment in the U.S. rose in early June while inflation expectations eased. The report followed data from the Labor Department showing the Consumer Price Index (CPI) surging to a 5-percent year-over-year pace in May, the most since August 2008 and higher than the 4.7% gain expected by economists.

Paradoxically, the surge in inflation was generally shrugged off by the market as many of the factors driving the jump in prices appear to be temporary in nature, suggesting the May report could be the peak reading and inflationary pressures could begin to ease in the months ahead. For example, the surge in used and rental cars prices, airfares, and hotels accounted for about half of the 0.74 percent month over month increase despite being just 6% of the core CPI. According to the Guggenheim Macro Research team, price inflation should cool by the end of the year, if not sooner. Travel prices should begin to normalize by the end of summer, used car prices are projected to peak in the coming weeks and new car production is set to ramp up during the second half of the year as supply shortages and production bottle necks begin to ease. In addition, we are starting to see prices of some key commodities are starting to drop from recent highs. Prices for corn, copper, and aluminum are moderately lower from highs reached in early May, while the price of lumber is down over 37 percent from the all-time high reached on May 7th.

Bullish Narrative Intact: We maintain a constructive view on risk assets and believe the macro environment provides a sturdy backbone for additional gains over the course of the year. The economic recovery has solid momentum and is likely to pick up steam in the months ahead. Importantly earnings expectations continue to trend higher and based on consensus expectations from Bloomberg, earnings are forecast to grow by over 35 percent this year followed by 12.5 percent in 2022. Monetary policy will remain accommodative with Fed likely to keep interest rates at record lows for the foreseeable future. While a near-term period of consolidation cannot be ruled out, we would view pullbacks as corrective and not the start of a broader move lower. Hence, periods of weakness would be viewed as a buying opportunity as the return profile over the next 12-plus months favors additional upside.

The Week Ahead: The focal point will be the two-day Federal Open Market Committee (FOMC) meeting on Tuesday and Wednesday. While no changes to policy are expected, investors are expected to parse the after-meeting communique for clues on the future of the Fed’s bond buying activity. Fed officials have not been able to publicly comment on the latest inflation report due to the traditional 10-day blackout period ahead of Fed meetings. At the last meeting in April, Fed Chair Powell reiterated his view that the price pressures would be transitory and were associated with the reopening process, so investors will be interested to see if he modifies his language following the stronger than expected May CPI report. The economic calendar will pick up this week with an increasing amount of data from May period. Report of interest include; Retail Sales, the Producer Price Index, Industrial Production, Building Permits/Housing Starts, Jobless Claims, and Leading Economic Indicators. The earnings calendar will move to the backburner for the next several weeks, although there are five “early reporters” from the S&P 500 scheduled to release results during the week.


The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

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