(Please enjoy this updated version of my weekly commentary from the POWR Value newsletter).

On Tuesday, the Nasdaq composite hit a new high thanks to a resurgence in tech stocks. In the morning, New York Fed President John Williams stated that while the economy was rebounding, it was not close to meeting the Fed’s goals quite yet. This means that the Fed will stay accommodative for the time being, a positive for the markets.

Later that day, Fed Chair Jerome Powell said he expects inflation to fall back down towards 2% next year, as supply chain issues sort themselves out.

On Wednesday, the Nasdaq set another record high, its second one in a row. Investors were still digesting Tuesday’s testimony from Federal Reserve Chair Jerome Powell, who stated that central bank policy will be determined by the economy’s ability to recover lost jobs, not inflation forecasts.

On the data front, preliminary readings from research firm IHS Markit showed that both manufacturing and services sector activity grew at a robust pace this month.

Stocks rose to new highs on Thursday after news broke that the White House and a group of bipartisan lawmakers agreed to a $1.2 trillion infrastructure deal. The bill could serve as a boost to economic growth and possibly create new revenue streams for construction and manufacturing companies. The S&P 500 and Nasdaq Composite both closed at fresh record levels.

Strong performance continued on Friday as the market opened higher. The Dow Jones Industrial Average gained 238 points and the S&P 500 rose to a new closing high and posted its largest one-week percentage gain since February. PCE rose 0.4% month over month versus the expectation for a 0.5% increase.

This was less than the 0.6% rise last month, possibly indicating slowing growth in inflation.

Stocks were mixed today with growth shares outperforming. Both the S&P 500 and Nasdaq closed at record levels. The President said he supports the bipartisan infrastructure proposal, easing GOP concerns that he may hold out for a larger spending package.

Plus, Richmond Federal Reserve President Thomas Barkin said he expected inflation to return to normal over time, which has matched the central bank’s recent commentary regarding temporary inflation pressures.

Market Outlook

Even with growth outperforming value in recent days, I still believe the value trade is intact. Value stocks, in general, have had a strong run so far this year. Recently, though, there has been some profit-taking and a temporary rotation in growth as many tech stocks look better priced compared with last year. But, the fundamental drivers for value are still there.

Value underperformed growth over the past decade as economic growth was fairly slow, but this year, we are seeing much stronger economic growth, which bodes well for more cyclical value stocks. Plus, the Fed hasn’t changed their accommodative stance yet, seeing that Friday’s lower than expected PCE figures support the Fed’s argument that inflation is transitory.

We still need to keep our eyes on CPI and PPI over the next couple of months, but as supply chain issues resolve and the labor shortage corrects itself, we are likely to see inflation cool off over time.

The potential infrastructure deal, if passed, is a strong growth driver this summer. We will see more spending on physical infrastructure and other areas without the tax increases, which would have been a negative for the markets.

Plus, in the coming weeks, we can gear up to hopefully see another strong batch of quarterly corporate earnings results. Many companies are expected to have benefited from vaccinations and economic re-openings that took place in the second quarter.

 What To Do Next?

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All the Best!

David Cohne
Chief Value Strategist, StockNews
Editor, POWR Value Newsletter

SPY shares were trading at $427.71 per share on Tuesday afternoon, up $0.24 (+0.06%). Year-to-date, SPY has gained 15.15%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: David Cohne

David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...

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