The second half of May ended on a positive note with all major markets posting gains. Amongst the markets, momentum shifted to the Dow Jones Industrial Average, which gained 1,147 points (3.44%) as investors shied away from technology stocks in favor of more established industrial companies. While this sector rotation impacted the NASDAQ, the index still gained 319 points (2.37%). Gains in the S&P 500 were more muted but did top 30 points (0.72%). This marks the 4th straight month of positive gains for the S&P, which is close to its all-time record high.
A host of positive data buoyed the markets. On the jobs front, a May 27 report of initial jobless claims showed a new pandemic low at 406,000. This was less than the expected 425,000.
The economy continues to improve and the first quarter Gross Domestic Product (GDP) grew at a blistering rate of 6.4%. (GDP is a measurement of the market value of all goods and services produced during a specific period. An increase in GDP generally signals a growing economy).
President Biden introduced his $1.7 trillion infrastructure plan. Republicans countered with a $928 billion plan. The debate will continue over how to fund this massive plan with increased taxes on rich corporations and wealthy Americans being the likely outcome. What is not in doubt is the massive amount of spending that will likely occur from the implementation of the eventual plan.
Treasury secretary Janet Yellen made headlines when she called for increased federal spending. She claimed that when inflation is taken into account, federal spending has actually been stagnant for a number of years.
Concerns over inflation continue to create anxiety on Wall Street. Increased government spending, particularly in the magnitude of the proposed infrastructure bill, could potentially trigger an inflationary environment. As always we will monitor the situation and present options when appropriate.