MAY 2021 MARKET UPDATE

As the U.S. recovers from the COVID-19 pandemic, the economy appears to be turning the corner, bolstered by the recent stimulus package from Congress.

Gross domestic product (GDP) grew at a rate of 6.4% (annualized) in the 1^st quarter, according to the advance estimate by the Bureau of Economic Analysis issued April 29. That follows GDP growth of 4.3% annualized in the 4^th quarter of 2020.

According to the report, the GDP growth reflected increases in personal consumption expenditures (PCE), nonresidential fixed investment, federal government spending, residential fixed investment, and state and local government spending. In particular, the increase in PCE was attributed to a rise in durable goods purchases (led by motor vehicles and parts), nondurable goods (led by food and beverages) and services (led by food services and accommodations).

However, the economic growth has also fanned inflation concerns, as the price index for gross domestic purchases increased 3.8% in the 1st quarter, following a 1.7% increase in the 4^th quarter of 2020. Excluding food and energy prices, the PCE price index increased 2.3%.

Boosted by a new round of stimulus payments, personal income increased at an annualized rate of 59.0% for the 1st quarter, compared with a decrease of 6.9% in the previous quarter.  Disposable personal income increased at an annualized rate of 67.0% in the 1st quarter, compared with a decrease of 8.8% in the previous quarter. Real disposable personal income increased at an annualized rate of 61.3%, compared with a decrease of 10.1% in the previous quarter.

Personal savings continued to climb – with the personal saving rate (personal savings as a percentage of disposable personal income) at 21.0% for the 1^st quarter versus 13% in the 4^th quarter.

In March, U.S. personal income jumped by 21.1% – the highest monthly increase since 1946. That followed a 7.0% decline in February, according to an April 30 report from the U.S. Department of Commerce.

Drilling down

U.S. stocks keep climbing

U.S. stocks continued to climb to new highs in April as the economy heated up. The S&P 500 Index was up 5.24% in April, from 3,972.89 at the end of March to 4181.17 at the April close. The total return for the S&P 500 (including dividends) for the month was 5.34%. The total return for the year was 11.84%. (The S&P 500 is a market-cap-weighted index that represents the average performance of a group of 500 large capitalization stocks.)

The NASDAQ Index was up 5.40% for the month, from 13,246.87 at the end of March to 13,246.87 at the April close. (The NASDAQ – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.)

Retail sales surge

Armed with a new round of stimulus payments, consumers went on a shopping spree in March, driving retail sales up 9.8% from the previous month, according to the Department of Commerce retail report issued April 15. Part of the increase in sales is also attributed to depressed sales in February due to massive snow storms.

Total sales for the January through March period were up 14.3% from the same period a year ago.

Auto sales were up 15.1% for the month – and up 71.1% from a year earlier; building material sales were up 12.1% for the month and 29.4% from a year earlier; clothing sales were up 18.3% for the month and 101.1% from a year earlier; and department store sales were up 13.0% for the month and 25.6% from a year earlier. Restaurants and bars also showed signs of a recovery as business reopened. The food services and drinking places category was up 13.4% for the month and 36.0% from a year earlier. Non-store retailers (primarily online) were up 6.0% for the month and 28.7% from a year earlier.

Unemployment claims drop

Unemployment claims have continued to drop as the economy picks up. The four-week moving average for unemployment claims through April 24 was 611,750 – a decline of 44,000 from the previous week’s average, according to a Department of Labor report issued on April 29. That’s the lowest 4-week average since March 14, 2020 when the pandemic began to sweep the U.S. For the week ending April 24, 533,000 unemployment claims were filed – a decline of 13,000 claims from the previous weeks. Unemployment claims are expected to continue to decline as the economy strengthens.

All sectors post gains in April

All 11 sectors the S&P 500 posted gains in April, led by the red-hot Real Estate sector, up 8.28%. Other leaders included Communications Services, up 7.85%, Consumer Discretionary, up 7.10%, and Financials, up 6.57%.

The chart below shows the results of the 11 sectors for the past month and year-to-date:

Treasury yields dip

Bond yields slipped slightly in April after a rapid run-up earlier in the year. The yield on 10-year U.S. Treasuries dropped from 1.74% at the end of March to 1.64% at the April close.

Oil prices still moving up

Oil extended its rally in April, as economic activity and global travel continued to rebound. The price of West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing, rose 7.47% in for the month, from $59.16 per barrel at the end of March to $63.58 at the April close. So far in 2021, the price of oil has increased 31.04%.

International equities rise

International equities continued to move up in April, as the MSCI EAFE Index rose 2.73%, from 2,208.32 at end of March to 2,68.51 at the April close. (The MSCI EAFE tracks developed-economy stocks in Europe, Asia and Australia).