The big-time potential of small cap stocks [PODCAST]
Pinpointing winners requires a sound investment process.
Pinpointing winners requires a sound investment process.
JUNE 2021 MARKET UPDATE
Thrivent Asset Management Contributors to this report: Steve Lowe, CFA, Chief Investment Strategist; John Groton, Jr., CFA, Director of Administration and Materials & Energy Research; Matthew Finn, CFA, Head of Equity Mutual Funds; and Jeff Branstad, CFA, Senior Investment Product Manager
Stocks were little changed over the past month, as the economy continued to recover from the pandemic. The S&P 500 was up just 0.55% for the month while the NASDAQ dropped 1.53%.
Bond yields dipped for the second consecutive month after a sharp rise earlier in the year. But oil prices continued to move up along with the upsurge in global travel.
Economic activity has increased for 12 consecutive months through May, according to the Manufacturing Purchase Managers Index issued June 1 by the Institute for Supply Management (ISM).
But the economic rebound has been hampered by rising prices, supply delays and labor shortages. “Record-long lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy,” according to Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee. “Worker absenteeism, short-term shutdowns due to part shortages, and difficulties in filling open positions continue to be issues that limit manufacturing-growth potential.”
However, despite the difficulties, manufacturing executives were overwhelmingly positive regarding prospects for future economic growth. “Optimistic panel sentiment increased, with 36 positive comments for every cautious comment,” Fiore reported.
The six largest manufacturing industries all registered moderate to strong growth in May, according to the report, including computer & electronic products; fabricated metal products; food, beverage & tobacco products; chemical products; transportation equipment; and petroleum & coal products, in that order.
U.S. stocks were little changed in May after a sustained run-up in the market. The S&P 500 Index was up 0.55% in May, from 4,181.17 at the end of April to 4,204.11 at the May close. The total return for the S&P 500 (including dividends) for the month was 0.70%. (The S&P 500 is a market-cap-weighted index that represents the average performance of a group of 500 large capitalization stocks.)
The NASDAQ Index was down 1.53% for the month, from 13,962.68 at the end of April to 13,748.74 at the May close. (The NASDAQ – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.)
Retail and food services sales were unchanged from the previous month in April, according to the Department of Commerce retail report issued May 14. But compared with one year earlier, when the pandemic lockdown was just beginning, retail sales in April were up 51%.
Auto sales were up 2.9% for the month – and up 104.5% from a year earlier; building material sales were down 0.7% for the month, but up 33.8% from a year earlier; electronics and appliance stores were up 1.2% for the month and 139.0% from a year earlier; and department store sales were down 1.9% for the month but up 72.5% from a year earlier.
Restaurants and bars also extended their recovery, with the food services and drinking places category up 3.0% for the month and 116.8% from a year earlier. Non-store retailers (primarily online) were down 0.6% for the month – as shoppers began to head back to brick and mortar retailers – but sales were still up 14.5% from a year earlier.
The number of job openings in the U.S. reached the highest level ever in May, with a total of 8.1 million job openings in the U.S., according to a May 11 report from the U.S. Department of Labor.
Unemployment claims have continued to drop as businesses reopen and the economy rebounds. In the week ending May 22, the 4-week moving average was 458,750, which was the lowest level since March 14, 2020. Unemployment claims are expected to continue to decline as the economy strengthens.
The U.S. unemployment rate dropped 0.3% to 5.8% in May, as the economy added 559,000 new jobs, according to the Department of Labor employment situation report issued June 7. Average hourly earnings for all employees on private nonfarm payrolls increased by $0.15 cents to $30.33.
The Energy sector of the S&P 500 was up 5.77% in May to lead all sectors, as the rally in oil prices continued. Trailing closely behind were Materials, up 5.22%, and Financials, up 4.79%. Four of the 11 sectors of the S&P 500 were down in April, including Consumer Discretionary, Utilities, Information Technology, and Communication Services.
The chart below shows the results of the 11 sectors for the past month and year-to-date:
Bond yields slipped slightly in May for the second month in a row after a rapid run-up earlier in the year. The yield on 10-year U.S. Treasuries dropped from 1.63% at the end of April to 1.58% at the May close.
Oil extended its rally in May, as global travel continued to pick up. The price of West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing, rose 4.31% in May, from $63.58 at the end of April to $66.32 at the May close. So far in 2021, the price of oil has increased 36.69%.
International equities continued to move up in May, as the MSCI EAFE Index rose 2.89%, from 2,268.51 at the end of April to 2,341.39 at the May close. (The MSCI EAFE tracks developed-economy stocks in Europe, Asia and Australia.)
All information and representations herein are as of 6/4/2021, unless otherwise noted.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management, LLC associates. Actual investment decisions made by Thrivent Asset Management, LLC will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon, and risk tolerance.
Any indexes shown are unmanaged and do not reflect the typical costs of investing. Investors cannot invest directly in an index.
Past performance is not necessarily indicative of future results.