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Inflation Fears Cause Markets To Fall; Most Losses Recovered In Last Two Days Thumbnail

Inflation Fears Cause Markets To Fall; Most Losses Recovered In Last Two Days

The Dow (-1.1%), NASDAQ (-2.1%) and S&P 500 (-1.3%) all fell last week.  Taxable bonds (down about 0.4%) also fell last week, while tax free municipal bonds were relatively flat.  One should almost be glad those numbers were as “tame” as they were because the markets were down sharply the first three days of the week, and recovered a majority of their losses in the final two days of the week.  The 10-year Treasury bond yield also spiked during the first three days, and eased the last two days as well.


Both the bond and stock markets reacted earlier in the week to concerns over inflation.  These concerns spilled over from the prior week when April inflation numbers were substantially above their norm.  Further, the computer hack of Colonial Pipeline caused a significant disruption in motor fuel supplies in the southeastern US.  We will likely see that show up in May economic reports, because there was a disruption in many businesses which needed that fuel to conduct normal business operations.  As a result, we also saw an uptick in fuel prices across the entire eastern US, and that will likely have an impact on inflation as well.  So, this unfortunate event has caused another short-term supply chain disruption, and one that is already being added to the disruption in the labor market, as I explained in last week’s market commentary.


It's not all gloom and doom, so let’s look at the bright side on this beautiful sunny day.  The quarterly corporate earnings season is nearly over, and according to FactSet, the earnings growth could end up as the fastest of any quarter in 11 years.  Through May 10, first quarter earnings of S&P 500 companies grew by 49%, far exceeding the 24% growth predicted by analysts at the end of March.  Now THAT is good news!

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