Stocks slipped back from record highs, as investors confronted signs of a storm coming in the form of higher inflation. Thankfully, a late rally moderated the week’s declines. Elon Musk was all over the week’s headlines, from hosting Saturday Night Live, to watching Tesla take a beating with other consumer discretionary stocks, to announcing that Tesla would no longer accept Bitcoin as payment, because of its carbon footprint. This news sparked a sell-off in the cryptocurrency that outpaced the overall markets. Since Wednesday, Bitcoin has fallen over 20%, while at its low point on Wednesday, the Nasdaq Composite index was down roughly 8.5% from its intraday April 29 peak. It was close, but still remained above the widely accepted 10% threshold for a “correction.”
The week brought more data surprises on the heels of the previous Friday’s substantially weaker-than-expected jobs report for April. On Wednesday, the S&P 500 Index had its worst day since February 25—and the Dow Jones Industrial Average had its worst since October 28—after the Labor Department reported that core (excluding food and energy) consumer prices jumped by 0.9% in April, the most in nearly four decades and roughly triple consensus estimates. The headline consumer price index (CPI) rose 4.2% over the 12 months ended in April, exceeding forecasts for a 3.6% increase. Producer prices, reported Thursday, rose 0.6%, roughly double expectations.
Stocks recovered some momentum on Thursday, however, seemingly helped by a bigger-than-anticipated drop in weekly jobless claims to another pandemic-era low of 473,000. April retail sales, reported Friday, were flat for the month, but that followed a March sales surge that was revised higher, to 10.7%. The economy’s continued reopening was reflected in healthy gains in spending at bars and restaurants, and the CDC surprised many by revising its guidance to say that fully vaccinated people do not need to wear face masks or social distance in most circumstances indoors.
The market’s partial recovery late in the week may have also reflected a growing consensus that the choppy economic signals were due to temporary dislocations from the pandemic, particularly on the inflation front. Rental car prices jumped 10% in April, a function partly of agencies selling off their fleets to stay afloat in 2020. Airline fares also jumped 10% and hotel prices rose nearly 9%, as many Americans resumed travel. Worries over the hacker-induced shutdown of a major gasoline pipeline operated by Colonial Pipeline, the primary supplier to much of the Southeast, also faded after operations were partially restored on Wednesday evening.
Federal Reserve officials made repeated assurances that the inflation data would not prompt any sudden shift in monetary policy. On Wednesday, Fed Vice Chair Richard Clarida acknowledged being surprised by the morning’s data, but he stated that a temporary surge in inflation remained “entirely consistent” with the Fed’s goals. Lael Brainard and Mary Daly, two other central bank officials, also stressed that the economy remained far from the Fed’s employment goals.
Most of us have heard the saying, “Every cloud has a silver lining.” It’s easy to think that most of the signs on the horizon are storm clouds, and we should run for cover rather than look for opportunity or good. Of course, our steadfast hope is greater than any silver lining in the markets. We know that God can take what is perceived as bad or evil and turn it to good. If it is His will, he will even use a week full of more Elon Musk than most of us care to see in order to glorify His name. So, if we expect this greater outcome, as we plan for all that He’s entrusted to us, our fear should turn to excitement and hope. (Genesis 50: 20-21). The team at Ambassador expects that there will still be plenty of silver lining in these coming clouds before any real storms hit.
Sources: Yahoo Finance, Reuters.com, and JP Morgan Market Insights
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