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Stocks Markets Dip on Inflation Fears; Small Caps Hit Hardest Thumbnail

Stocks Markets Dip on Inflation Fears; Small Caps Hit Hardest

The Dow (-0.5%), NASDAQ (-1.9%), and S&P 500 (-1.0%) all fell last week, retreating off their all-time highs from the prior week.  Further, small cap stocks dropped over 5%, continuing a 4-week trend of small caps lagging their large cap counterparts.  Meanwhile, taxable bonds and tax-free municipal bonds were both up about 0.1% - 0.2% last week.


Fears of inflation continue to dominate the headlines as economic data has been demonstrating a rise in the producer and consumer price indexes, both of which are measures of inflation.  However, the Treasury Secretary, Janet Yellen, reiterates comments from the Fed Chairman, Jerome Powell, in that they both believe that the peak inflation we are currently seeing won’t last more than a few months.  The current inflationary pressure stems from an increase in demand for goods and services following the pandemic, while supplies of those goods aren’t keeping up with the demand, due in part because of the pandemic’s impact on the labor force.  Both economic leaders believe that this imbalance will eventually go away, relieving inflationary pressures.  Inflation can be bad for both the stock and bond markets.  In addition to inflationary worries, there continues to be concern for the COVID delta variant and the potential impacts it could have on the economy.  In the end, both of these concerns lead to uncertainty, which generally causes the stock markets to go down.  As always, we closely monitor economic data, and will continue to do so here.

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