Last week was relatively quiet on the economic update front, with only three major data releases. The weekly initial jobless claims and new home sales reports served as highlights. This week will be busier, with reports on first-quarter GDP growth, durable goods orders, and personal income and spending.
I have had a number of questions recently about inflation and what that means for the Fed and interest rates. The general assumption seems to be that inflation is about to rise sharply and that the Fed will be forced to raise rates to control it, with the usual panoply of devastating side effects. The taper tantrum gets mentioned frequently, as when rates rose sharply and derailed stock markets after the Fed suggested it would tighten policy.
As we approach the summer months, there are a lot of reasons for investors to be worried: inflation, taxes, the deficit, and on and on. I am hearing quite a bit about reasons not to be cheerful, some of which we’ve talked about in other posts. But because of where we are in the calendar, there is one more making the rounds—the old market chestnut “sell in May and go away”—that I want to talk about today. The short response to this adage, for readers in a hurry, is “don’t.”
Today, I’d like to provide an update on the coronavirus, including the economic and market implications. We’ve had good news on the medical front, as the fourth wave of the virus doesn’t seem to be gaining traction. Case counts and positive test rates are back to the lows we saw as the third wave subsided, and hospitalizations and death rates have improved. One potential problem is that vaccination rates have slowed, which we will need to keep an eye on.
April was a good month for the markets. The S&P 500 and Nasdaq gained more than 5 percent, while the Dow was up almost 3 percent. These returns were driven, in part, by the medical news, with new case counts, hospitalizations, and deaths all down. While the medical risks declined, reopening accelerated. Job growth rose, and weekly layoffs dropped. Consumer confidence and spending also improved.