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May 7, 2021

Market Commentary
by Scott J. Brown, Ph.D., Chief Economist

Nonfarm payrolls rose by 266,000 in the initial estimate for April, well below the median forecast (+980,000). However, payrolls rose by 1.089 million prior to seasonal adjustment, in line with a typical (pre-pandemic) April. The unemployment rate edged up slightly to 6.1% (from 6.0%), reflecting increased labor force participation. The ISM surveys showed somewhat slower growth in April, but remained very strong by historical standards, with ongoing production constraints and labor challenges leading to inventory reductions and higher input costs pressures. Jobless claims fell below 500,000 – a pandemic low – although the level remains very high by pre-pandemic standards. Unit auto sales rose to an 18.5 million seasonally adjusted annual rate in April, the strongest since July 2005. The trade deficit hit another record high in March, boosted by strong domestic demand for goods and slower economic recoveries in the rest of the world.

Treasury Secretary Yellen noted that, if enacted, the Biden administration’s proposals would lead to a reallocation of resources and “it may be that interest rates will have to rise somewhat to make sure our economy won’t overheat.” She added that additional spending would be small relative to the size of the economy, but “could lead to some very modest increases in interest rates.”

Next week, the Consumer Price Index is expected to be up about 3.5% year-over-year, but that reflects a rebound from the low level of a year ago (+0.3% y/y in April 2020). Retail sales are expected to advance further. Industrial production may post a modest gain (production hours were reported to have fallen 0.5%). Three members of the Fed’s Board of Governors will speak, all on the same subject (“U.S. Economic Outlook and Monetary Policy”).


Indices

  Last Last Week YTD return %
DJIA 34548.53 34060.36 12.88%
NASDAQ 13632.84 14082.55 5.78%
S&P 500 4201.62 4211.47 11.86%
MSCI EAFE 2295.82 2291.95 6.91%
Russell 2000 2241.42 2295.46 13.50%

Consumer Money Rates

  Last 1 year ago
Prime Rate 3.25 3.25
Fed Funds 0.05 0.25
30-year mortgage 3.09 3.30

Currencies

  Last 1 year ago
Dollars per British Pound 1.3926 1.236
Dollars per Euro 1.2111 1.083
Japanese Yen per Dollar 131.63 115.50
Canadian Dollars per Dollar 1.218 1.397
Mexican Peso per Dollar 19.952 24.061

Commodities

  Last 1 year ago
Crude Oil 64.29 23.55
Gold 1835.50 1725.80

Bond Rates

  Last 1 month ago
2-year treasury 0.14 0.16
10-year treasury 1.55 1.68
10-year municipal (TEY) 1.492 1.54

Treasury Yield Curve – 05/07/2021

Chart

As of close of business 05/06/2021


S&P Sector Performance (YTD) – 05/07/2021


Chart

As of close of business 05/06/2021


Economic Calendar

May 11  —  Small Business Optimism (April)
 —  Job Opening and Labor Turnover Survey (March)
 —  Fed Governor Brainard speaks
May 12  —  Consumer Price Index (April)
 —  Fed Vice Chair Clarida speaks
May 13  —  Jobless Claims (week ending May 8)
 —  Producer Price Index (April)
 —  Fed Governor Waller speaks
May 14  —  Retail Sales (April)
 —  Industrial Production (April)
 —  UM Consumer Sentiment (mid-May)
May 18  —  Building Permits, Housing Starts (April)
May 19  —  FOMC Minutes (April 2-28)
May 31  —  Memorial Day (markets closed)
June 4  —  Employment Report (May)
FOMC Policy Decision  —  FOMC Policy Decision

 

All expressions of opinion reflect the judgment of the Research Department of Raymond James & Associates, Inc. and are subject to change. There is no assurance any of the forecasts mentioned will occur or that any trends mentioned will continue in the future. Investing involves risks including the possible loss of capital. Past performance is not a guarantee of future results. International investing is subject to additional risks such as currency fluctuations, different financial accounting standards by country, and possible political and economic risks, which may be greater in emerging markets. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, and state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Municipal bonds may be subject to capital gains taxes if sold or redeemed at a profit. Taxable Equivalent Yield (TEY) assumes a 35% tax rate.

The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks. An investment cannot be made directly in these indexes. The performance noted does not include fees or charges, which would reduce an investor's returns. U.S. government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments. Gross Domestic Product (GDP) is the annual total market value of all final goods and services produced domestically by the U.S. The federal funds rate (“Fed Funds”) is the interest rate at which banks and credit unions lend reserve balances to other depository institutions overnight. The prime rate is the underlying index for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. Material prepared by Raymond James for use by financial advisors. Data source: Bloomberg, as of close of business Nay 6, 2021.