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Inflation Worries Ease, Leading Stocks Higher, and Yields Lower

Weekly Update – June 11, 2021

  • The S&P 500 index closed higher for a third consecutive week as investor fears of persistent inflationary pressures waned, driving the index to a new record closing high.
  • The benchmark index closed at an all-time high of 4,247.44 on Friday, up 0.41% from last Thursday’s close of 4,229.89.
  • As limited inventory and attractive financing continue to squeeze the housing market, the real estate sector emerged as the week’s top-performing sector with a gain of 1.95% from the prior week’s close with Real Estate Investment Trusts (REITS) the standout within the sector.
  • Its strategic acquisition of four properties last week helped elevate Federal Realty Investment Trust (FRT) to the top spot among REITs with a 5% gain.
  • On the other end of the real estate spectrum was Weyerhauser (WY) which was down 1.9% from a week ago as lumber prices continued to retreat from their May highs.
  • Led by a meteoric gain in shares of Biogen (BIIB), the healthcare sector reversed last week’s loss with a gain of 1.9%. The US Food and Drug Administration earlier last week approved Biogen’s Aduhelm for the treatment of Alzheimer’s disease fueling a record high in the stock.
  • Though the FDA’s decision was considered controversial by many in the healthcare industry, it didn’t prevent Wall Street analysts from upgrading the stock and raising their price targets as high as $500.
  • In the consumer discretionary sector, winners and losers were nearly evenly matched last week, but a 5.1% gain in Domino’s Pizza (DPZ) helped put the sector in the plus column for the week (+1.6%) and ending a two-week losing streak.
  • With Treasury yields falling to their lowest level in at least three months, and interest rates likely to remain stubbornly low for the time being, the financial sector limped into Friday close 2.4% lower, making it the S&P 500’s biggest decliner. Wall Street’s largest banks, including JPMorgan (JPM), Goldman Sachs (GS), and Citigroup (C) along with insurers Progressive (PGR) and Allstate (ALL) all took the brunt of last week’s losses.
  • Industrials were also on the defensive with hefty losses in Caterpillar (CAT) and United Rentals (URI) contributing heavily to the sector’s 1.7% decline last week.
  • ServiceNow’s (NOW) 8% gain last week propped up the technology sector with a weekly gain of 1.4%. The stock rallied on Thursday after Goldman Sachs added the infrastructure software company to its Conviction Buy list.
  • After digesting last week’s disappointing jobs report, Wall Street braced for inflation data last week that many feared would show inflation pressures that were more than just ‘transitory.’ But while consumer prices increased by their fastest pace since 2008, the year-over-year figure was skewed by the base effect, and was projected to dissipate as supply bottlenecks ease. As a result, Wall Street shrugged off the above-consensus data and recalibrated its outlook for post-pandemic price pressures, sending Treasury yields higher, and the S&P 500 to its highest level on record.
  • Next week’s Federal Open Market Committee will likely end uneventfully with the FOMC expected to keep interest rates and the scope of its monthly bond-buying unchanged. However, investors will be eager to glean any clues as to how the FOMC views recent inflation data, and whether it has begun weighing how and when to taper its quantitative easing program.
  • Leading up to the FOMC meeting is a deluge of key economic data including the producer price index, retail sales, industrial production, and capacity utilization, and the Empire State manufacturing index all on Tuesday. Wednesday brings housing starts and building permits, while the Philadelphia Fed manufacturing index and leading index on Thursday finishes up the week.
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