Despite an underwhelming employment report on Friday, U.S. equities edged higher last week driven by continued focus on reopening momentum and rising corporate earnings expectations amid strong first quarter results. For the week, the S&P 500 and Dow Jones gained 1.3% and 2.7% respectively, but the tech heavy Nasdaq Composite fell -1.5% as the rotation out of expensive, high-growth stocks into cyclical stocks leveraged to the economic reopening gained traction. Last week’s rotation was in part triggered by comments from White House Treasury Secretary Janet Yellen, who indicated that interest rates may need to “rise somewhat” to counter upward pressure on asset and goods prices from fiscal stimulus and government spending plans. The comment tapped the breaks on pricey growth stocks whose valuations are underpinned by the expectation that interest rates and overall economic growth will remain lower for longer.

U.S. job growth in April missed the mark by a wide margin last week, according to the monthly report from the Bureau of Labor Statistics, which recorded a 266k increase in nonfarm payrolls compared to expectations for nearly 1 million jobs added. The unemployment rate ticked up to 6.1% from 6.0% in March as more people entered back into the labor force looking for work. Labor shortages have received the bulk of the blame as employers have cited several obstacles to hiring including enhanced unemployment benefits, lack of access to child care, supply chain bottlenecks, and lingering coronavirus fears. However, the disappointing report may have been driven lower by temporary seasonal factors and the year-to-date momentum remains strong. The weekly employment data on citizens filing for unemployment insurance continues to move in the right direction with continuing claims reported at under 3.7 million last week compared to the Covid peak of over 23 million, though there are still over 11.8 million citizens receiving support through special pandemic unemployment assistance programs.

The miss in employment data has not derailed rising expectations for economic growth and inflation, particularly as supply chain issues have put additional upward pressure on prices in the short-term. On Friday, a ransomware cyberattack forced a shutdown of the Colonial Pipeline, America’s largest fuel pipeline that transports roughly 2.5 million barrels of oil per day from the Gulf Coast to eastern states. The pipeline is expected to reopen later this week as gas stations along the East Coast have started to run out of fuel. Meanwhile, industrial metal prices are also surging with copper prices posting a record high for the first time in over a decade on Friday. Copper prices are up over 33% so far year-to-date and have nearly doubled over the past year fueled by growing demand from manufacturing and construction.

Corporate earnings results have provided an offset to inflation concerns and a moderation in economic data. With earnings results for 90% of S&P 500 constituents in the book, the index overall is on track for a remarkable 49% increase in earnings compared to the first quarter of 2020. That compares to consensus expectations for a growth rate of just over 20% for the quarter at the end of March.

As earnings season winds down in the week ahead, investors will turn their attention to updated inflation and consumer data readings. Core consumer and producer prices are forecast to have risen 2.3% and 3.9% year-over-year, respectively (or 3.6% and 5.9% including food & energy). Meanwhile, retail sales growth is expected to moderate a bit to a 0.7% increase in April after jumping 9.7% in March from February’s levels with a boost from stimulus checks.