facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog external search brokercheck brokercheck Play Pause
Weekly Market Guide: May 10th Thumbnail

Weekly Market Guide: May 10th

Investment Retirement Funding Insights

Review the latest portfolio strategy commentary from Mike Gibbs, managing director of Equity Portfolio & Technical Strategy.

April core CPI jumped to 3% y/y (well above consensus estimates of 2.3%) and was more than just due to “base effects” with a 0.9% m/m price surge (highest m/m reading since the early 80's). Drastically influencing this monthly reading in our view is the swift economic reopening accompanied by enormous stimulus and supply chain shortages (creating substantial pricing power as demand far outstrips supply). For example, used car pricing was up an enormous 16.2% m/m, along with airline prices up 10.2% m/m and hotel prices up 8.8% m/m (unsustainably high numbers). This inflationary dynamic could last for months, but should abate over time as stimulus ebbs and supply chain issues get resolved. There is still plenty of slack in the labor market and productivity growth is increasing, both offsetting the sustainability of higher inflation.

Nevertheless, this “inflation scare” is creating volatility in the equity markets, particularly the long-duration growth names (i.e. technology). We ultimately believe this will prove to be a “noise event,” resulting in a buying opportunity for equities on the pullback. However, we are in one of those "noise" drawdowns right now, and it is hard to predict how far or long it will go, especially with so much algorithmic trading and factor investing. The technology sector is oversold enough to experience a relief bounce, and the S&P 500 is rebounding from technical support at its 50 DMA (4056). But the market as a whole is not deeply oversold yet, so we will need to monitor price action in the coming days to assess whether or not the current bout of volatility is over. Longer term, the overall trend remains bullish (>90% of stocks above their 200 DMA) with plenty of potential technical support levels nearby. We view this current period as a normal pullback, and would use weakness as an opportunity to accumulate favored names.

Fundamentally, robust earnings growth and positive estimate revision trends remain supportive of equities. And as earnings sharply recover, elevated valuation multiples should normalize. "Inflation scares” can create some urgency in that normalization process. Historically, the highest valuation multiples are seen in the 2-2.5% inflation range on average and begin to diminish as inflation moves north of that figure. But the recent inflation report is unlikely to waver the Fed from its accommodative stance for now. Additionally, margin estimates for 2021 and 2022 continue to move higher to new highs. And credit spreads remain very low, actually narrowing on yesterday’s April inflation readings (i.e. the bond market is not as anxious as equities). So while volatility is bound to occur and inflation concerns could be the catalyst for a moderation in the market's pace of ascent, we continue to view the fundamental positives as outweighing the negatives.

View full PDF

IMPORTANT INVESTOR DISCLOSURES

This material is being provided for informational purposes only. Expressions of opinion are provided as of the date above and subject to change. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct.

Links to third-party websites are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any third-party website or the collection or use of information regarding any websites users and/or members.

This report is provided to clients of Raymond James only for your personal, noncommercial use. Except as expressly authorized by Raymond James, you may not copy, reproduce, transmit, sell, display, distribute, publish, broadcast, circulate, modify, disseminate, or commercially exploit the information contained in this report, in printed, electronic, or any other form, in any manner, without the prior express written consent of Raymond James. You also agree not to use the information provided in this report for any unlawful purpose. This report and its contents are the property of Raymond James and are protected by applicable copyright, trade secret, or other intellectual property laws (of the United States and other countries). United States law, 17 U.S.C. Sec. 501 et seq, provides for civil and criminal penalties for copyright infringement. No copyright claimed in incorporated U.S. government works.

Index Definitions

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.

The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.

The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market.

The MSCI World All Cap Index captures large, mid, small and micro-cap representation across 23 Developed Markets (DM) countries. With 11,732 constituents, the index is comprehensive, covering approximately 99% of the free float-adjusted market capitalization in each country.

MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 21 developed nations.

MSCI Emerging Markets Index is designed to measure equity market performance in 23 emerging market countries. The index's three largest industries are materials, energy, and banks.

Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.

International Disclosures

For clients in the United Kingdom:

For clients of Raymond James Financial International Limited (RJFI): This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in the FCA rules or persons described in Articles 19(5) (Investment professionals) or 49(2) (high net worth companies, unincorporated associations, etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended)or any other person to whom this promotion may lawfully be directed. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is, therefore, not  intended for private individuals or those who would be classified as Retail Clients.

For clients of Raymond James Investment Services, Ltd.: This document is for the use of professional investment advisers and managers and is not intended for use by clients.

For clients in France:

This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in "Code Monetaire et Financier" and Reglement General de l'Autorite des marches Financiers. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is, therefore, not intended for private individuals or those who would be classified as Retail Clients.

For clients of Raymond James Euro Equities: Raymond James Euro Equities is authorised and regulated by the Autorite de Controle Prudentiel et de Resolution and the Autorite des Marches Financiers.

For institutional clients in the European Economic rea (EE ) outside of the United Kingdom:

This document (and any attachments or exhibits hereto) is intended only for EEA institutional clients or others to whom it may lawfully be submitted.

For Canadian clients:

This document is not prepared subject to Canadian disclosure requirements, unless a Canadian has contributed to the content of the document. In the case where there is Canadian contribution, the document meets all applicable IIROC disclosure requirements.

Broker Dealer Disclosures

Securities are: NOT Deposits • NOT Insured by FDIC or any other government agency • NOT GUARANTEED by the bank • Subject to risk and may lose value

Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. Raymond James Financial Services, Inc., member FINRA/SIPC. Raymond James® is a registered trademark of Raymond James Financial, Inc.


Check the background of this firm/advisor on FINRA’s BrokerCheck.