- Stocks logged another record high, with the S&P 500 rising for the third straight week. European equity markets were mostly lower, while Asian markets were mixed. Signs of inflation pressures led bond yields higher, but investors remained focused on the brighter economic-recovery outlook. The consumer discretionary and health care sectors outperformed, while energy lagged. Oil prices, along with other commodities, were under some pressure today as the U.S. dollar moved higher.
- Inflation data in the U.S. and China were the main focus for investors today, with producer prices topping estimates in both countries, contributing to higher bond yields. U.S. producer prices rose 1% in March from February, well above the expected rise of 0.5%. On an annual basis, prices increased 4.2%, the fastest pace since 2011. Similarly, in China, producer prices rose 4.4%, the highest since 2018. Higher commodity prices, supply-chain disruptions, and rising shipping costs are all contributing to higher inflation, which is expected to also show up in consumer prices reported next week. The lift in prices over the coming months could resemble the brief inflation worries investors wrestled with as the economy exited the financial crisis in 2010. Because of the deflationary forces that kept price increases in check the last decade, we think inflation pressures could prove temporary.
- Today's session concludes what has been a relatively quiet week in terms of headlines and market moves. With stocks near all-time highs, the market volatility index has spent the last seven trading days below historical average levels, the first time in more than a year. While market swings have narrowed, investors will be well-served, in our view, by maintaining realistic expectations for returns and volatility. Examining recoveries and expansions over the last 70 years, it is common for pullbacks to become more frequent and returns to moderate in the second year of a bull market. Rising inflation, interest rates and taxes could potentially trigger market anxiety. However, we expect stocks to continue to rise on the back of the economic reopening, ongoing policy stimulus, and rising corporate earnings.
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