Another massive inflation report (PDF) came in last week, and once again the markets brushed it off. The year-over-year increase in the Consumer Price Index hit 5.0% last month, but bond yields were basically unchanged on the news.

May (i.e., this month's report) was the low point in terms of easy "base effects" — meaning that the comps from a year ago have been telegraphing that this month's number should be the peak (simply looking at last year's monthly starting points). That, plus the general belief in the Fed's interpretation that the current inflation is transitory and due to recede rather quickly as the global economy reopens and supply chain bottlenecks resolve, are causing bond investors to not react by pushing interest rates higher as one would normally expect.

One of the central tenets of SMI's investment philosophy is that trying to predict what the market will do next is a fool's errand. While there are a host of "gurus" who have become famous based on a particular market prediction they made, there are very few (if any) that have a consistent track record of making such calls.

From time to time, we've run articles pointing out how poorly "expert forecasts" actually do in predicting the future. Whether it's the direction of the stock market, interest rates, or virtually any other signal, the track record of the prediction crowd is dismal.

However, even more shocking than the fact that so few seem to be able to predict the future are the studies showing how little value even accurate predictions of the future would present. That's hard for most of us to accept because it seems so counterintuitive.

As we head into June, it's an opportune time to take stock of the market's big picture themes. We'll be at the 2021 halfway point before we know it, so here's a quick update on the big market drivers so far this year, as well as what I'm watching as we move into the summer and the back-half of the year.

Several months ago, we started drawing attention to the fact that the year-over-year comparisons for economic data and corporate earnings would hit their low point (easiest-to-beat) in the second quarter of 2021. That was largely due to the "basing effects" of the 2020 shutdowns that created incredibly low starting comparisons in April, May, and June of 2020. The timing of the U.S. vaccine rollout this year furthered those expectations of a big re-opening recovery.

Sure enough, the second quarter opened with a series of explosive economic growth and corporate earnings reports. Economic growth data, inflation, and corporate earnings have all shown strong growth in the April and May data. That strength is just starting to dissipate a bit now, but overall conditions seem likely to remain strong through the end of the quarter.

There are no official changes to the DAA lineup for June. Read on for the full details.

DAA is a core portfolio strategy designed to help SMI readers share in some of a bull market’s gains, while minimizing (or even preventing) losses during bear markets. The strategy involves using exchange-traded funds to rotate among six asset classes, holding three at any one time.

DAA is a defensive, low-volatility strategy that nonetheless has generated impressive back-tested results when evaluated over full market cycles, demonstrating the power of "winning by not losing."

The recommended categories/ETFs for June are (in order of current momentum):

There is a new Sector Rotation fund being recommended for June. Read on for the details.

Sector Rotation is a high-risk/high-volatility strategy. While its peaks and valleys have been more extreme than SMI's other strategies, it has generated especially impressive long-term returns, as discussed in Sector Rotation is Risky, But Highly Rewarding.

Those of a certain age likely have a favorite “price story” to illustrate the incredible change that has taken place over their lifetime. Whether it’s the 5-cent bottled Coke they used to buy at the corner drugstore or the house their parents bought for $2,500 and sold 30 years later for $125,000, the point is the same: today’s dollars don’t buy nearly as much as they used to!

The historical record backs up these anecdotes. As the Federal Reserve chart below illustrates, the purchasing power of the U.S. Dollar has been in constant decline for decades.

For the first time in Sector Rotation's 18 year history, we're making a change mid-month. Read on for the rationale behind this unusual move.

Sector Rotation is a high-risk/high-volatility strategy. While its peaks and valleys have been more extreme than SMI's other strategies, it has generated especially impressive long-term returns, as discussed in Sector Rotation is Risky, But Highly Rewarding.

Right on schedule, the stock market is dropping as we hit May. For those who may not be familiar with the old "Sell in May and go away" advice, this is a familiar annual seasonality pattern for the stock market. We'll recap the basics of this topic, then I'll give you my thoughts on this year's signals in the last section of the article (so feel free to skip to that if this is old hat for you).