US stocks closed higher last Friday as prospects for faster gains outweighed concerns about inflationary pressures. The Federal Reserve recently said that it is ready to wind down the measures it implemented during the peak of the COVID-19 crisis.
Encouraging results from Merck & Co's experimental Covid-19 pill also sparked excitement among companies. As such, commodities and financial stocks soared, provoking the S&P 500 to rise by 1.25%. Small-cap stocks also jumped 1.7%, as did airlines, cruise operators, hotels and amusement parks.
But despite Friday's stock rally, the S&P 500 still experienced the worst weekly decline since February.
"We continue to advise investors to buy winners from global growth," said UBS Global Wealth Management CIO Mark Haefele. "Positive sentiment will return as recent headwinds abate and the focus shifts back to the outlook for solid economic growth and strong earnings," he added.
Talking about macro statistics, manufacturing activity in the US grew at the fastest pace in four months, thanks to strong demand for manufactured goods and growing inventories. Similarly, consumer sentiment rose, but remained close to a pandemic low. Personal consumption, which the Fed uses to set its inflation target, also showed impressive gains.
Former US Treasury Secretary Lawrence Summers said investors may be tuning into the risk of an overheated US economy and a chance that the central bank will move away from monetary stimulus more quickly. In this regard, BlackRock Vice Chairman Philipp Hildebrand said the reopening of the world economy will likely lead to high inflation over the next 12-18 months.
"There's a lot to sift through for investors, and I think that's what you're seeing with the increase in volatility," said Ryan Nauman, market strategist at Zephyr.
The largest increase was 2.3%, and it came from shares of financial companies. Meanwhile, the largest drop was 4.6%, which came from shares of industrial enterprises. Bloomberg said this 6.9 percentage point gap between first and last place was the smallest since 1989.
Other events to look out for are:
- OPEC meeting;
- Eurogroup meeting;
- report on the volume of US industrial orders.
