The changing flow of a river in early fall
Currents Pulling in Different Directions
If you have ever gone rafting, kayaking or even tubing, you know that rivers are much more complex than they appear on the surface. The river may appear to be moving as one uniform force pulled by gravity downward. However, there are actually many currents swirling about within the overall body of water. It’s possible to be in a section of the water that is moving in a circular direction or not moving at all (an eddy). Water in the main current moves faster than water on the edges. If a river eventually flows into the ocean, the current may actually reverse course and move upriver (tidal bore).
The stock market is very much like a river. There are always currents within the main current. Over the past few weeks, the various currents include concerns about inflation, corporate earnings, the coronavirus, infrastructure spending, and the Federal Reserve. These currents have been pulling the market in various directions and the net result is the market has been stalled over the past six weeks.
This past Friday, the Dow Jones Industrial Average rose by 123 points, or 0.36%. The S&P 500 index fell 3 points, or 0.08%. The Nasdaq dropped 65 points, or 0.48%. For the week, the Dow fell 0.50%, the S&P 500 index dropped 0.4% and the Nasdaq rose 0.3%.
Spot gold traded at $1,877 on Friday and is down 1.69% year to date. West Texas Intermediate Crude futures for July 2021 delivery traded at $63.58 a barrel on Friday and is up 72% this year
10-Year Treasury Note
Friday the yield on the 10-year Treasury Note was 1.623%. Yields have drifted lower over the past few weeks, suggesting investors are less anxious about inflation.
COVID-19 – The Numbers
Globally, across 213 countries and territories, there have been over 167 million confirmed cases and over 3.4 million deaths. In the United States, over 32 million have been infected and nearly 589,000 have died. India and Brazil continue to struggle against the virus.
The data suggest that we are gaining greater control of the virus. While there are a few hot spots in the US, new infections continue to drop.
Testing continues to decline. This isn’t surprising. There are fewer people becoming infected and, thus, fewer seeking a test. Also, the positivity test rate continues to drop.
Source: Johns Hopkins University
The chart below from the CDC tells us more about who is hospitalized. There are few people in the hospital, and those who are hospitalized are more evenly distributed across ages.
While it is certainly encouraging to see the numbers of deaths fall, it is sobering to contemplate that nearly 590,000 Americans have died from Covid-19.
The Institute for Health Metrics and Evaluation (IHME) at the University of Washington projects that a total of between 939,000 and 960,000 Americans will die from the virus by September 2021. The variance is driven by mask usage, vaccinations, and other containment strategies.
The U.S. is winning the war against the coronavirus, because Americans are getting vaccinated. However, we’ve entered the stage of the vaccination campaign where things are harder. There are many Americans who haven’t received a vaccine, because they’re afraid of shots, they’re suspicious of the science supporting the vaccines, or they lack access to a vaccination location. Getting these people vaccinated won’t be easy.
We really don’t know how many Americans need to be vaccinated to corral the virus. Health experts suggest 70-80%. We’re now seeing states and employers using various “carrots and sticks” to get people vaccinated.
The Labor Market
The Labor Department reported that Initial jobless claims fell last week to 444,000. This is another new, encouraging low since the beginning of the pandemic.
About 16 million people are receiving unemployment benefits during the week ending May 16, down from 16.9 million the previous week.
Many states are beginning to cut back or ends unemployment benefits. Several will end the $300-a-week federal unemployment benefit. Other states are beginning to require that those collecting unemployment benefits start looking for work to continue to receive them. Still other states will cut off all benefits for self-employed and gig workers.
Source: Trading Economics
Investors are keenly focused on inflation data and the Federal Reserve’s reaction to it. Inflation spiked last month as depicted below. If we see another month or two like that, we can expect the Fed to change course and move away from its highly accommodative monetary policy.
There is a very important way in which the stock market is not like a river. Rivers always eventually head down. The stock market, on the other hand, always eventually goes up. There are periods during which the market falls (called corrections and bear markets) and there are periods during which the market stalls (consolidation). But investors who are patient and steadfast during these periods are always rewarded over time.
Keep the faith, get vaccinated when you can, be safe, and stay healthy.
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