Catalyst for Summer Stall

Weekly Market Update. A catalyst triggered events and we are in the “summer stall” mode for the stock market which, in our view, started on April’s “Tax Day.”

Catalyst action

A higher-than-expected U.S. inflation report last week acted as enough of a summer catalyst for traders to cause equity markets to drop.Catalyst Therefore, S&P 500 fell 1.4% on the week (down to around 4.5% into Thursday morning). This was after climbing back late in the week after Fed speakers talked down hawkish concerns and softer retail sales missed lofty reopening expectations. It is summer, and we are in the dead zone of the second quarter. And the media gave excuses for higher volatility — which is expected and normal for the media.

Catalyst details

Last week’s concerns centered around the largest month-over-month U.S. core CPI print since 1981 — which we see as temporary. The S&P 500 dropped 2.1% on the day of the release, before rallying back later in the week on short covering and Friday payday flows. “Inflation-hedge” asset classes did not rally, with almost all pockets of the equity market down, along with precious metals.

U.S. technology stocks lost 2.2% on the week. This was partially because they are most exposed given their faster growth profiles. Perceived need for low interest rates to discount earnings that are more highly tied to future growth also pushed them down. Consumer discretionary was also weak on the week, down 3.7%.

On the upside, “boring/stable growth,” consumer staples rose. Typically, they are companies that draw consistent spending and often have solid lagging pricing power versus commodity inputs.

Oak Harvest expects a very strong second half of the year. Therefore, the investment team continues to look for opportunities to buy our portfolio names at cheaper prices. We expect volatility in the S&P 500 to continue in the second quarter. This might result in a pullback reaching around 3985–4015 (which we approached in last Wednesday’s overnight).

Resources

Last Fridays Podcast:

Interesting Reading:

 

Cumulative Market Total Returns, Week Ending 5/14/2021

Cumulative Market Total Returns, Week Ending 5/14/2021

Inflation

Chart of the week

 

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