Economic Optimism Runs High

Fueled by frothy economic optimism and a Fed with its foot still firmly pressed down on the accelerator, risk appetite continues to grow in U.S. financial markets. The S&P 500 generated a 5.33% return in April, bringing the year-to-date figure up to 11.8%, and credit spreads for corporate, municipal, and consumer credit finished the month tighter.

3 Takeaways For May

• High economic optimism and accommodative monetary and fiscal policy continue to boost risk appetite in U.S. financial markets.
• The first estimate of Q1 GDP showed 6.4% growth, leaving the U.S. economy less than 1% below Q4 2019 levels in real GDP terms.
• The inflation debate persisted in April as several companies announced price increases due to higher input costs, while the Fed remains firm in its belief that any near-term price increases will be transitory.

The trajectory of the economic recovery has been impressive, and last week, we received the first estimate of Q1 GDP. The U.S. economy is now less than 1% from Q4 2019 levels in real dollar terms following a 6.4% growth rate (quarter-over-quarter annualized).

Consumer spending was a major driver of first quarter growth, rising 10.7% quarter-over-quarter and powered in large part by two rounds of fiscal stimulus. A decline in inventories, largely attributed to supply chain troubles, subtracted 2.6 percentage points from the headline growth rate. If those issues are resolved in current quarter or Q3, it could present upside risk to already lofty expectations +9.4% and +7.2%, respectively, per survey data.

Visit trustcu.com to read about the latest economic data and overall market trends. This market commentary is provided by ALM First Financial Advisors, LLC, the investment advisor for Trust for Credit Unions.