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Markets Mixed on Inflation Data; Bonds Rally Thumbnail

Markets Mixed on Inflation Data; Bonds Rally

The US stock market indices were mixed last week as the Dow lost 0.8%, but the NASDAQ and S&P 500 gained 0.4% and 1.9%, respectively.  Each of the three indices are hovering near their record highs set earlier in the spring, and are up near or over 10% YTD.  Taxable bonds were up about 0.3% - 0.7% last week and tax-free municipal bonds were up 0.5% - 0.7% as US Treasuries rallied.  The 10-Year Treasury yield dropped below 1.5% for the first time in three months, and well below its high of 1.74% on March 31.


Inflation continues to be on the forefront of investors’ minds as inflation data surged higher than expected in May, and its highest yearly increase since 2008.  Month over month, inflation was about 0.6%, which is also very high.  Yes, this data is in direct conflict with the 10-Year Treasury yield dropping to its lowest level, which had me scratching my head as well.  Apparently, a closer look at the data suggests that the spike in inflation is perceived to be from areas of the economy directly associated with increases in business re-openings.  Plus, year over year data is comparing to the peak of the pandemic when prices were unusually low.  As a result of the drop in the 10-year bond rate, this provided support to the value of bonds, and the higher-PE stocks represented by the NASDAQ.  All eyes will be on the Fed when they announce on Wednesday their perception of the economy and what, if and when the Fed intends to do with regard to combatting inflation by making monetary policy changes.


Have a great day and week, and Happy Father’s Day to all of you Dads out there!

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