Daily Market Notes: 5-12-2021

The market yesterday became a downside misery equalizer this week in the sense that the Dow, which had held up much better than the other indices due to the financial, industrial and energy components being in favor lately, finally felt the rage of the sellers and as a result it ended with its worst one-day performance since February 26th.

It got blasted to the downside by as much as 667 points in the morning before stabilizing somewhat before ending with a closing decline of 473 to 34,269. It was led in this lower endeavor by large declines in AXP, BA, GS, HD, MCD, 3M, JPM and UNH, all of which had done very well this year, so no tears should be shed for any of them.

The S&P was down by a large 77 points at 11am before it stabilized to some extent and ended with a more moderate loss of 36 to 4152. The Nasdaq, which has done poorly lately with three straight weekly declines and on its way to a fourth, was able to cut the worst of its 294 point morning low to almost make it back to unchanged and ended 12 points lower at 13,389. This was because some of its more awful performers this year finally were able to attract some buying interest and this group included NFLX, ZM, AMZN and some of the cloud-type stocks which had fallen by as much as 50%.

The Russell 2000 Index of small stocks also made a comeback from its worst morning levels and ended lower by 6 down to 2207. The VIX really loved this negative overall action and rose to 21.84, which now puts the 16.35 ultimate downside support level further in the rearview mirror for the time being.

The market’s downturn so far this week reflects growing worries among investors that inflation is rising. Any significant acceleration of inflation would be a drag on the overall market and could crimp the broader economic recovery. The selling is now made worse by today’s April C.P.I. report which showed a larger than expected gain of 0.9%, the highest since 2008 and puts the year over year advance up to 4.2% from 2.6%. In addition, the core rate which excludes food and energy rose by 0.9% and resulted in a year over year increase of 3%, up from 1.6% in March, and this is the highest level in 26 years.

Commodity prices have been rising, particularly for industrial metals such as copper and platinum, as well as for energy commodities like gasoline and crude oil. Tech stocks, which get most of their valuation from the future profits those companies are expected to earn, become less valuable if inflation decreases the value of those earnings.

Inflation has been a concern for investors since bond yields spiked earlier this year, though yields have mostly stabilized since then. The yield on the 10-year Treasury was steady at 1.61%. Despite reassurances from the Federal Reserve and a much weaker-than-expected U.S. jobs reading last week, investors have re-focused on the potential for surging prices to pressure central banks into tapering off on their massive stimulus and ultra-low interest rates.

Rising inflation in commodities has begun to push prices for some consumer products higher. Still, analysts expect increases to be mild and tied to the growing economy, even as the jobs market lags behind. Consumer confidence and retail sales are re-gaining ground as people get vaccinated and businesses reopen.

Signals of inflation have popped up in other markets as well as for instance China reported its strongest increase in producer prices since October 2017 last month, as supply constraints cascaded into manufacturing.

This week sees more earnings as the reporting season for the first-quarter starts to wind down and the lineup is as follows, among others: yesterday – PLTR, ELY and RBLX higher; today – FUBO, TM higher and EA, LMND lower; tonight – BMBL, SONO, POSH, COMP, VRM; Thursday – BABA, ABNB, DASH, YETI, COIN, BLNK and Dow component DIS; Friday – HMC.

Economic reports will have: yesterday – JOLTS job opening survey for March rose to a record 8.1 million; today – April C.P.I. and see above for details; Thursday – April P.P.I.; Friday – April retail sales, April industrial production and capacity utilization, mid-month May U. of Michigan Consumer Sentiment Survey.

Donald M. Selkin

Chief Market Strategist

 

Disclosures:

Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our current or potential customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analysis concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, and Associated Press}. It is possible that at any given point in time, the author, Newbridge Securities, or one or more of its employees or registered individuals associated with Newbridge Securities, may hold a position, either long, or short, as well as options, bonds or other instruments in the companies mentioned in this report.