Week in Review: June 11, 2021
June 14, 2021
Recap & Commentary
In a week that seemed to lack any clear conviction, with the exception of US small caps, the S&P 500 managed to set two new record highs. Somewhat surprisingly, the records were set despite headline inflation rising to its highest level since 2008. Also surprising was the decline in bond yields, following the report’s release. One would be forgiven for assuming that a stronger-than-expected inflation report would lead to a selloff in the bond market and thus higher rates. Instead the opposite happened, as the 10-Year Treasury yield fell to its lowest level since March. Another interpretation of the decline in yields is that bond investors agree with the Fed that the current spike in inflation will be transitory and that once it subsides, economic activity will settle back to a longer-term run rate more consistent with what was experienced pre-pandemic.
For equity markets, it seems that the big question is “What’s next?” Given the market’s ho-hum reaction to a 50% increase in first quarter corporate earnings, it appears that investors have largely “priced in” the expected improvement in both corporate earnings and broader economic activity. The passage of an infrastructure bill might provide a marginal boost, but given the current state of negotiations, the final amount of any bill passed will be relatively modest in comparison to President Biden’s initial proposal of $2T.
Perhaps the largest near-term driver of markets will be monetary policy. While the Fed is widely expected to maintain its Fed Funds rate at current levels for the time being, increasingly there will be discussion about when the Fed might begin to slow the current pace of its asset purchases. How such pronouncements align with expectations will likely influence the near-term direction of markets.
Economic Bullet Points
Economic data was headlined by consumer inflation (CPI) which jumped to its highest level since 2008. On a headline basis, CPI rose 0.8% in May and 5.0% from a year ago. That was faster than the monthly and annual estimates of 0.4% and 4.7%, respectively. Similar to the April reading, used car and truck prices, which rose 7.3% for the month and 29.7% from a year ago, accounted for a third of the overall increase. On a core basis, excluding volatile food and energy prices, inflation increased to 3.8% Y/Y, the fastest pace since June 1992.
Consumer sentiment improved in early June, led by an uptick in consumers’ expectations for the economy over the next six months. Interestingly, consumers’ outlook for inflation over the next year fell from 4.6% in May, to 4.0%. Similarly, the five-year outlook for inflation declined from 3.0% to 2.8%.
After hitting a record high of $75B in March, the US trade deficit fell slightly to $68.9B in April. The decline was the result of a 1.1% increase in exports, to $205B, and a 1.4% decline in imports, to $273.9B.
Weekly jobless claims fell to 376K, the lowest level since the pandemic began and the second consecutive weekly reading below 400K. In comparison, weekly jobless claims averaged 218K in 2019.
Of Note
Over the weekend, the G-7 unveiled their Build Back Better World (B3W) initiative. Ostensibly the plan is intended to provide a response and counter to China’s Belt and Road Initiative (BRI), a modern day “Silk Road” designed to project China’s growing economic power.
Market Indices Week of 06/11
S&P 500 | 0.4% |
Small Caps | 2.2% |
Intl. Developed | 0.3% |
Intl. Emerging | 0.0% |
Commodities | 0.3% |
U.S. Bond Market | 0.5% |
10-Year Treas. Yield | 1.47% |
US Dollar | 0.4% |
WTI Oil ($/bl) | 71$ |
Gold ($/oz) | $1,880 |
The Week Ahead
- Retail Sales
- Housing Starts
- Empire State Mfg.
- Philly Fed. Mfg.
- Industrial Production
- Producer Inflation (PPI)
- Weekly Jobless Claims
Newsletter Sign Up
Insights
The New Economy Begins: 4 Money Moves High-Net-Worth Individuals Should Make Before Inauguration Day
As a new administration prepares to take office, high-net-worth individuals face an opportunity to review their financial strategies. Changes in […]
Learn moreWeek in Review: December 30, 2024
Recap & Commentary Markets ended the holiday-shortened week modestly higher giving hope to investors that 2024 will end with a […]
Learn moreHow to Plan for Retirement: A Comprehensive Wealth Management Strategy for High-Net-Worth Individuals
As a high-net-worth individual, retirement isn’t just a milestone—it’s a chance to transition into the next chapter with purpose, freedom, […]
Learn moreThe IRS Announces 3 Key Changes to 401(k) Plans for 2025: How to Maximize Your Retirement Savings
The IRS has recently unveiled important changes to 401(k) plans for 2025, offering new opportunities for workers to boost their […]
Learn moreTax-Efficient Retirement Planning: Strategies to Optimize Your Wealth in Retirement
When planning for retirement, maximizing wealth and managing tax burdens are essential to ensure your hard-earned savings work for you. […]
Learn more