With America shifting to a ‘getting back to normal’, no mask stance, investors began May 2021 exhibiting a ‘risk on’ attitude, enabling stocks to advance strongly out of the gate. As can be seen from the 1st graph below, the general trend of the past seven months (since Pfizer’s vaccine news of Nov. 9th) favouring value, cyclical and ‘re-opening’ stocks, continued during early May. By mid-May, the combination of a weak U.S. jobs report and hotter-than-expected pricing data south of our border, triggered a rethink among investors, catalyzing the 2nd factor reversal year to date. Judging by the lack of reaction in bond yields shown in the 2nd graph below, it’s apparent that, for now, investors chalked the miss on jobs to timing and have given the Fed a free pass on its ‘transient’ attitude towards inflation. Most equities recovered, though value bettered growth, yet lingering investor uncertainty made a sustainable rise through 4,200; a tough nut to crack for the S&P 500 through the time of writing of this note.
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