Stock markets fell last week as investors were somewhat surprised by the Federal Reserve (Fed) shift in messaging. Both the S&P 500 (a proxy for large-cap domestic stocks) and the MSCI ACWI (a proxy for global large and mid-cap stocks) fell 1.9% during the week.

If there was any question regarding whether investors bought in to the Federal Reserve’s narrative of inflation being transitory, it was answered last week. Despite the US Consumer Price Index (a common measure of inflation) rising to nearly 5% year-over-year, an increase not seen since 2008, bond markets barely reacted.

Equity markets rose slightly last week during the shortened Memorial Day holiday week (the S&P 500 was up 0.6% while the MSCI ACWI index was up 0.7%), with the majority of the gains occurring on Friday. The big news on Friday was provided by the Labor Department which reported that nonfarm payrolls rose by 559,000 jobs in May, well short of the 675,000 jobs expected.

While equity markets were down slightly last week (the S&P 500 index lost -0.4%), it has still been a relatively strong start to the year for stocks, in general. The S&P 500, which is a proxy for large-cap US stocks, and the MSCI All Country World Index, a proxy for global large and mid-cap stocks, have gained 10.6% and 8.6%, respectively, so far in 2021.

The S&P 500 index fell 1.4% last week, with the consumer discretionary and technology sectors leading the decline amid worries about increasing consumer and producer prices. The market benchmark ended the week at 4,174, down from last Friday's closing level of 4,233, which was a record closing high.