The Dow (+0.7%), NASDAQ (+0.5%), and S&P 500 (+0.6%) each gained for the week, with all three indices approaching their all-time highs set in late April or early May. Taxable bonds and tax-free municipal bonds also rose about 0.1% - 0.4%, responding to interest rates dropping sharply on Friday, and becoming lower for the week.
There was a slew of monthly economic data reported last week, with most of it being favorable economic news, except for Friday’s jobs report. Earlier in the week, the ISM manufacturing AND services reports demonstrated their 12th straight month of gains. Jobless claims were the lowest since March 2020, and continuing claims were at 15 million, which is half of what it was one year ago, but still double of pre-pandemic levels. In summary, we lost about 23 million jobs at the beginning of the pandemic, and about 2/3 of them have since been recovered. All of this data should come as no surprise, because at this time one year ago, we were in the early stages of the pandemic, and the economy was in bad shape. Conversely, Friday’s jobs report showed a disappointing number of new jobs, but it’s not really “bad” news, because it seems to be a result of a labor shortage, and not because of lack of demand.
On a more concerning front, the Fed announced last Thursday that it may begin to pare back on it’s bond-buying activities and may actually start planning to sell bonds. So what does that mean? Well, this is a behind-the-scenes action by the Fed that will ultimately cause interest rates to rise without actually raising the interest rates. Thus, it is a pretty clear signal that the Fed anticipates inflation may be a concern, and this is their way of combatting it early on. Worse news yet, there was a report Thursday that Russia was planning to sell a portion of its dollar currency. Is that a geopolitical move? Who knows, but that will certainly put pressure on the US dollar’s value in conjunction with the injection of large amounts of money into the economy by government stimulus and spending. A dollar losing value can also be a catalyst for inflation, as you need more dollars to buy the same product. We have been paying close attention to these data, and can see this as being cause for making some portfolio allocation changes in the very near future.