Outlook - May 2021

• May was a volatile month for equity markets. Although the S&P 500 and the Dow Jones ended the month in positive territory, the rally was mainly during the last days of the month.
• The driver The main reason for the drop during May was the fear of inflation. This increased after the announcement of the annualized inflation figure, which came out substantially higher than expected. On the other hand, the number of payrolls (payrolls recovery) did not meet investors' expectations.
• The U.S. government continues to print money at extraordinary speeds; and President Biden has announced an additional stimulus plan that could be as much as $6 trillion.
• The pace of vaccination continues to accelerate and with it the reduction in cases of COVID-19. So far more than 50% of the American population has managed to receive at least one vaccine and daily cases of infection dropped 50% during May alone.

Macro Corner - May 2021

May was a volatile month, especially on weekdays. The final number of the month hides movements that led the S&P 500 to fall from 4,240 to 4,060 (- 4.3%) before recovering to close near 4,204. May had a similar behavior to April, as multiple asset classes rose in parallel. Gold, one of our preferred alternatives to defend against inflation and the devaluation of the dollar rose over 7%, to finish above USD 1,900.

On the fixed income side, the vast majority of credit factors had positive returns with strong performance, but the sector was not exempt from high volatility, which was constant during the month.

The main thread that has tied up fear in the financial market throughout 2021 has been inflation. Beyond the potential risk from new waves of COVID-19 which in a positive way has been steadily mitigating. Arguably, the U.S. government has begun to emerge from the pandemic, but this situation has led to a fiscal deficit of 16.2% relative to GDP. To note, virtually 20% of all dollars created in history have been created during the last twelve months.

With the exception of Modern Monetary TheoryThe economic history of most schools of economics and the economic history of many nations would indicate that endless money printing will cause an increase in prices and a devaluation of the currency. Until now, economic devastation such as that caused by the pandemic has not appeared in economic data.

Read more Macro Corner | May 2021

However, on May 13, the first reading of CPI (Consumer Price Index) twelve months after the pandemic and exceeded all expectations. The final figure was 4.2% compared to the 3.6% expected. This could be due, as Jerome Powell mentions, simply to the fact that March through June 2020 were the worst months of the pandemic, which could represent a lower than normal denominator.