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Dear clients and friends,

At Perseus Wealth it is important to us that you are well informed about what is happening in the markets.  Here are a few of the key topics of conversation that deserve the most attention this month. If you have any questions or would like additional detail, we would love to participate in further discussions.

What’s Happening?  After a streak of positive jobs data, April’s payroll numbers MASSIVELY missed expectations.  The economy adding just 266K jobs during the month[i] vs an expectation of nearly 1M.  In short, this was one of the largest downside misses on record[ii].  The economy is still more than 8 million jobs short of the pre-pandemic levels[iii] and the unemployment rate ticked up a notch to 6.1%.  The good news is that this does not appear to be that big of a deal, given the context of other positive economic data.  Jobs had been growing at an unsustainably fast rate, so taking a breather probably is not a problem… unless it happens again.

Following April’s poor jobs number, the optimism surrounding equity markets stumbled.  Fears related to inflation continue to be the main driver of volatility (and will likely continue to do so for the next number of months).  The latest inflation numbers have to be taken with a grain of salt given the economic shutdowns, but that does not soften the blow that consumers are facing.  By the numbers, inflation rose by 0.8% over the month and 4.2% over the last year[iv].  Inflation fears are something to monitor but much of the increases over the last month may be temporary, e.g., used cars and rental cars were among the biggest inflationary increases, as rental car companies rushed to rebuild their inventories after liquidating portions of it to stay afloat during the crisis.

Fears of rising rates (because of inflation) continue to take their toll on tech and growth-oriented stocks. The NASDAQ Composite Index shed most of its year-to-date gains over the course of the first two weeks in May. Although, there was similar action in February - the NASDAQ fell over 10% from mid-February to early-March – it recovered its lost gains over the next 45 days.  Value investments have handily bested the growth sector year-to-date with almost double the gains through the end of May. Is investing in growth/technology dead?  Given how handily growth has outperformed value for the last decade, it certainly does not appear to be, but the next few months could continue to be pretty rocky.

A hacking attack disrupted the Colonial pipeline that serves most of the east coast, causing shortages of gasoline and long lines at the pump with cases of hoarding and panic-buying across the region. The ransomware attack forced the pipeline to shut down completely and took a $5 million dollar payment to the hackers to resolve[v].  With operations back online within about a week this will likely create a temporary spike in energy inflation but that is expected to be transient.

What It Means: The road to normalcy continues to be bumpy, so expect elevated levels of volatility in markets throughout 2021.  Vaccination rates, although slowed, are still climbing.  Combining that with infection rates trending down in every state but two offers cautious optimism that over the next few months we will enjoy a complete reopening of the economy.  If that can happen, we can begin to see inflation subside and potentially see less volatile markets.  Fingers crossed!

 

Best Always,

 

John and Sean

 

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that any strategy will be successful.

 


[i] Source: U.S. Bureau of Labor Statistics, Employment Situation Summary; https://www.bls.gov/news.release/empsit.nr0.htm

[ii] Source: Bloomberg

[iii] Source: U.S. Bureau of Labor Statistics, All Employees, Total Nonfarm, retrieved from FRED, Federal Reserve Bank of St. Louis

[iv] Source: U.S. Bureau of Labor Statistics

[v] Source: Colonial Pipeline Paid Hackers Nearly $5 Million in Ransom. Bloomberg. https://www.bloomberg.com/news/articles/2021-05-13/colonial-pipeline-paid-hackers-nearly-5-million-in-ransom