Stocks rallied, at the end of May, on renewed confidence in the economic recovery, lower inflation worries, and rising comfort with Fed officials talking about the potential for easing of its monthly bond purchases. Technology, communication services, and reopening stocks were among the market leaders.
Investor sentiment was buoyed late in the month by an encouraging jobless claims number and the unveiling of a Republican infrastructure proposal. A somewhat hotter-than-expected inflation indicator did nothing to dampen optimism as stocks added to their gains ahead of the three-day Memorial Day weekend.1,2
Jobless Claims Reach Pandemic Lows
In a sign of further recovery in the labor market, the number of initial jobless claims fell to a pandemic low, continuing the downward trend in worker layoffs. New jobless claims totaled 406,000 for last week, well below the pandemic high of nearly 1.5 million, though still above the 2019 weekly average of 218,000.2
Buffet and Powell Talk Inflation
What does it mean when two of the most powerful voices in American financial life seem to be saying two different things?
In one corner, we have the “Oracle of Omaha,” investor Warren Buffett. As one of the nation’s richest people and most frequently sought opinions on business matters, he’s a voice that gets a great deal of attention. He says that prices are going up.
“We are seeing very substantial inflation,” Buffett told his shareholders in May. “We are raising prices. People are raising prices to us and it’s being accepted.”3
In the other corner, Federal Reserve Chair Jerome Powell sees a slightly different story. While it’s true that prices are up, for now, the economic recovery is in progress and it might be a mistake to see inflation as a guest long overstaying its welcome.
“One-time increases in prices are likely to only have transitory effects on inflation,” Powell said. He later added, “It will take some time before we see substantial further progress.”4
While economic recoveries always take a bit of time, it can certainly test the patience of any investor, even one like Buffet who has lived through many economic ups and downs.
1. CNBC.com, May 28, 2021
2. The Wall Street Journal, May 27, 2021
3. CNBC.com, May 3, 2021
4. CNBC.com, April 28, 2021