May was another good month, albeit one with some ups and downs. On the upside, the pandemic entered its endgame and corporate earnings blew away expectations. On the downside, the significant problems of success attending our move back to normal started to become apparent. Overall, May took us further along the road to normal, but it also began to reveal the bumps on that road.

Looking Back

Medical risks drop. On the medical front, case growth and deaths kept dropping during May, ending the month at levels last seen at the very start of the pandemic. The decline has continued in June, which suggests we now have the virus largely under control at the national level. Vaccinations have continued, with 4 of 10 people now fully vaccinated and more than half of our population having received at least one dose. When we combine those facts with the number of people who have probably been exposed, many states are now approaching herd immunity.

In May, we likely saw the end of the pandemic as a national risk factor, although some states and localities may still experience localized outbreaks. Most state economies are now fully reopened, and those that are not now have timetables to get there. May saw everyday life start the final phase of moving back to normal.

Economic risks rise. But while the pandemic is effectively over and the economy is reopening, May also saw the rise of several economic risks that had not been anticipated. They are the problems of success. Even as job openings have increased, job growth has dropped. Supply chains have jammed up on shortages of labor, chips, and pretty much everything else. The speed and magnitude of the economic recovery collided with the reality that global supply chains are not yet up to speed.

These issues caused a significant rise in inflation. As demand exceeded supply across the board, prices went up for many goods. Reports on consumer price inflation came in at the highest level in years, rattling financial markets and causing a pullback in many of them. May was the month that the pandemic risks bottomed, but the recovery risks rose.

Bumpy ride for markets. The financial markets responded to both the medical and economic news. As medical conditions kept getting better, the markets were pushed up. Helping drive this trend were the recent strong earnings reports. Both here and abroad, markets are in multimonth uptrends that reflect the continued improvement in the overall environment. Inflation fears spiked toward the middle of the month, however, which pulled the markets back. Overall, May was a bumpy month.

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