Testing the Foundation

Stocks rebounded from the previous week’s declines, bringing the S&P 500 Index and the technology-heavy Nasdaq Composite index to new highs and helping both record their best weekly gains since early April. Energy shares fared best within the S&P 500, as oil prices reached their highest levels since October 2018 on falling global inventories. Utilities and real estate stocks lagged.

Moderating inflation fears may have factored in helping reverse the previous week’s drop. Some signs emerged that supply chain pressures that had caused a spike in commodity prices were easing. Lumber prices continued a sharp decline from record highs, and metal prices came under pressure, as China released stockpiles to cool the market.

On Thursday, Bloomberg reported that prices in the wholesale used car auction market had peaked, suggesting that retail vehicle prices might soon follow. The sharp increase in used car and truck prices has contributed roughly one-third of the recent overall rise in consumer prices, according to Bloomberg. Federal Reserve Chair Jerome Powell’s testimony to Congress on Tuesday, in which he restated policymakers’ belief that the recent spike in inflation will prove temporary, also seemed to reassure investors.

Later in the week, economically sensitive securities got a boost from news of an agreement on a bipartisan infrastructure deal. On Thursday morning, President Joe Biden announced that a bipartisan group of 10 Senators had agreed on a plan for roughly $1 trillion in infrastructure spending over the next five years. The bill has yet to be drafted, however, and many expect it to face resistance from both ends of the political spectrum.

Lastly, several figures released during the week indicated healthy expansion slightly below consensus estimates. Durable goods orders rose less than expected in May, with many analysts pointing to supply chain issues, while weekly jobless claims came in higher than expected, at 411,000. New home sales fell 5.9% in May, and previous months’ sales were revised lower, with many builders citing materials shortages and costs.

As these builders know, it is imperative to expect the unexpected and build a strong foundation to withstand the forces that will eventually be exerted on a home.  “According to the grace of God given to me, like a skilled master builder I laid a foundation, and someone else is building upon it. Let each one take care how he builds upon it” (1 Corinthians 3:10).  Similarly, our wealth management has crafted a sound foundation that is ready to be built upon in ways that provide unique opportunities and anticipate the economic forces that will continue to affect the markets.

Sources: Yahoo Finance, Reuters.com, and JP Morgan Market Insights

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