Jobs Are Coming Back, But Is It Enough?

Last week was all about jobs, as the market overcame its growing inflation concerns to rally on three employment data points clustered at the end of the week. The ADP private payrolls report (moved to Thursday by the holiday) ripped higher by 978,000 for May, well above the 650K consensus and up from 742K for April.

This edition features Ford's electric future; the funeral industry in Australia; Amazon's move to buy MGM; and notes from Toll Brothers, General Mills, and Intuit.

Stocks were mostly higher on Thursday morning, led by the Industrial and Financial sectors. On the employment front, the Labor Department said that first-time claims for state unemployment benefits fell to 406,000 for the week ended May 22, down from 444,000 a week earlier and below the Bloomberg consensus of 425,000. The Dow rose 0.6%, the S&P 0.3%, and the Nasdaq 0.1%. Crude oil fell slightly to $66 per barrel, while gold traded near $1897 per ounce.

Stocks fell again on Wednesday morning amid continued inflation fears, as the 10-year Treasury yield rose to 1.68% and U.S. consumer prices rose at their highest rate in nearly 12 years. The Labor Department reported that its consumer price index rose 0.8% in April, up from 0.6% in March and well above the Reuters consensus forecast of 0.2% growth. The CPI also rose 4.2% from the prior year, up from a 2.6% increase in March. The Dow fell 0.9%, the S&P 1.2%, and the Nasdaq 2.0%. Crude oil traded near $66 per barrel, while gold fell $4 to $1832 per ounce.

Often overlooked amid gyrations in the stock market is dividend income, which is an important element of total return. Between 1930 and 2012, dividend income accounted for 42% of total return of the S&P 500, according to Hartford Funds. And that's just the average. In some decades, dividends accounted for more than 50% of total returns and even 100% of returns. More recently, dividends have accounted for 15%-20% of returns. Still, in 2018, dividend payments softened the blow when most market indices declined as the Federal Reserve hiked rates. Not all dividends are created equal, though, and it is important to understand the difference between the two main categories: high-yield stocks and dividend-growth stocks.

This pick list highlights constituents of the Morningstar US Mid Cap Index that we believe offer investors the best risk-adjusted return prospects. The market capitalization range for U.S. mid-caps typically falls between $1 billion and $8 billion and represents 20% of the total capitalization of the U.S. equity market.

Stocks rose modestly on Monday morning at the start of a busy week for 1Q earnings reports, which have thus far been strong. According to FactSet, 84% of S&P 500 companies that have reported 1Q results have topped consensus expectations. On the economic front, the Commerce Department said that core capital goods orders excluding aircraft rose 0.9% in March, up from a 0.8% decline in February but below the Reuters consensus forecast of 1.5% growth. The Dow rose 0.1%, the S&P 0.2%, and the Nasdaq 0.6%. Crude oil traded near $62 per barrel, while gold rose slightly to $1778 per ounce.

The stock market moved lower last week, then rallied on Friday, ultimately finishing flat-to-down. Tech stocks and blue chips performed similarly, with tech narrowly outperforming. During Friday's session, the Dow Jones Industrial Average increased 228 points, or 0.67%. The S&P 500 was up 1.09%, and the Nasdaq Composite was up 1.44%. For the week, the DJIA was down 0.46%, the S&P 500 was up 0.13%, and the Nasdaq Composite was down 0.25%. Year-to-date, the DJIA is up 11.23%, the S&P 500 is up 11.29%, and the Nasdaq Composite is up 8.76%.

Pricing pressures are starting to pick up -- primarily at the producer level -- and it should not be too long before more mainstream measures of inflation start to tick higher as well. Even so, we don't think the U.S. Federal Reserve is too worried, as Chairman Powell has said that the central bank is willing to let inflation rise above its 2% target in exchange for a continued decline in unemployment. We track 14 inflation measures on a monthly basis. On average, they are indicating that prices are rising at a 6.2% rate, ahead of last month's 3.8% reading. But drilling down to core inflation (which we obtain by averaging Core CPI, market-based PCE Ex-Food & Energy and the 10-year TIPs Break-even Interest Rate), our reading is 1.8%, only slightly above last month's reading of 1.7%. The big increases in recent months have come at the producer level, as the PPI for intermediate unprocessed goods, for example, is now 42% and the PPI for intermediate processed goods is 13%. Much of this price activity is driven by the recent recovery in commodity prices, including oil. The Fed's inflation forecasts call for a core inflation reading of 2.2% in 2021 and 2.0% in 2022.

The Vickers Top Buyers & Sellers is a daily report that identifies the five companies the largest insider purchase transactions based on the dollar value of the transactions as well as the five companies the largest insider sales transactions based on the dollar value of the transactions.

This edition features our U.S. housing outlook; smarter hydrogen investing; Swatch's prospects in a pricey luxury market; and notes from Johnson & Johnson, Schwab, and AMD.

In a recent article on margin buying, The Wall Street Journal reported that as of late February, investors had borrowed a record $814 billion against their portfolios. That's up 49% year-over-year. And it's not just the YOLO crowd on WallStreetBets with their 'diamond hands' holding GME. The collapse of Archegos Capital Management shows that even institutional pros can get overextended with quickly disastrous consequences.