Markets Volatile as the Fed Hints at Tapering Asset Purchases
- Stocks were mixed last week. We saw global markets (represented by the MSCI All Country World Index) up 0.4% and domestic stocks (represented by the S&P 500 Index) down -0.4%. In the U.S., we saw the NASDAQ Index finally show a little strength against the S&P 500, outperforming slightly for the week. The leaders of the week were emerging markets (represented by the MSCI Emerging Markets Index), which were up 1.7%.
- The minutes from the April Federal Open Market Committee meeting were released and gave some insight into the policymakers’ thinking. As they’ve indicated for some time now, they do believe that inflation has the ability to run above their 2% target due to supply chain issues. They expect it would only be temporary, however. The Fed also hinted at tapering the asset purchase program, which has been part of their accommodative monetary policy since the pandemic began.
- New unemployment claims fell to 444,000 last week, which is the lowest level that we’ve seen since the pandemic began.
- On the economic data front, an index of leading economic indicators reported its strongest gain since last July. The Conference Board Leading Economic Index reported a 1.6% gain in April after a 1.3% gain in March. Some examples of the index’s components, which measure items that would occur before (or lead) economic strength or weakness, are manufacturers’ new orders, average weekly initial unemployment claims, building permits, and stock prices.
- The last economic piece that showed strength last week was the composite PMI (purchasing managers’) index. The reading in May came in at 68.1. For perspective, any reading above 50 indicates expansive economic activity. A more detailed look showed the service sector was even stronger than manufacturing.
- One thing we haven’t spoken about much is real estate. As many people know, the housing market has taken off over the last several months, with several buyers bidding on each listing. It was released last week that existing home sales fell 2.7% in April, which is the third straight monthly decline. While this is the time of year that sales usually increase, home prices have increased substantially given a low supply.
- I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.
