June 2021
Market Update

We have arrived at another Arizona summer!  The kids having a pool party next door, the dog walkers out at 5 am instead of 7, and the thermometer on my car dashboard - all say it’s so.  How nice to see signs of a normal summer this year, even if it does mean the start of an endless string of 100 degree days….

Even stock markets have had a fairly normal year, with a strong earnings season fueling continued gains in stocks and a steady, if unexciting, ride for bonds.  Diversification this year has been the name of the game as Value has continued to out-perform Growth, with the Dow Jones up 1.9% for the month of May while the tech-heavy NASDAQ was down 1.8%. The S&P settled in the middle with a slight gain of 0.5%.  Both small company and mid-size company stocks have participated in the year’s rally, unlike the past decade which saw them languish far behind, although we saw both segments take a bit of a breather in May, finishing slightly positive at 0.1%.  The big winner this month?  International markets.

Perhaps the re-opening of Europe’s main markets as vaccination efforts are improving will be the catalyst for growing consumer confidence and spending, which should in turn fuel corporate profits and gains in the markets.  Indeed, the UK announced its first day of no COVID deaths in over a year today!  Pockets of problems still exist, however, as we have all witnessed on the nightly news the horror of India’s resurgence, while several countries in South America continue to struggle with their response to the pandemic as well.  All serve as a reminder that the work is not quite done yet, even though we will celebrate the progress we have made in just over a year.

Whether it is consumer confidence or just frustration over personal limitations during the pandemic, the consumer is back with a vengeance.  Retail sales scored another strong gain last month, up over 11% with the services sector keeping pace with manufacturing.  The housing market strength (might be an understatement) is being joined by the travel industry as flights, cruises, and hotels are booked solid for summer vacations.  We have heard some interesting stories of rental car shortages just as we are gearing up for what will likely be a record summer for travel.

Government spending, personal spending … there is a lot of money washing around the global economy right now and the topic of inflation remains persistent in the financial press (see our Graphic of the Month for a visual on how the USA stacks up vs the rest of the world with debt).  The Federal Reserve says inflation is ‘transitory’ although they decline to define just how much time they consider ‘short term’ to be.  Costco’s CEO disagrees, stating that rising wages and material costs are going to persist much longer than we expect.  Nothing but nothing is less expensive now than it was a year ago, I think we could all agree.

The response by the Federal Reserve to persistent inflation will be tightening monetary policy through the following paths:  first up will be stopping their purchases of bonds, then raising short-term interest rates and finally working to decrease the size of their balance sheet.  The latter has steadily risen since January, up another $100 Billion each month this year, and currently sits at just shy of $8 Trillion.  Finesse will be necessary once they start this process of tightening monetary policy because markets have become addicted to this drug called easy money.  We are watching closely as this will have investing implications for all of our portfolios, but we expect they will telegraph their moves well in advance and move slowly so as not to create havoc in the stock markets.  Next week will be the next Federal Reserve Board meeting and markets have moved sideways this past week while we all wait to see how they are viewing the economic data and their timeline for any changes.

Currently, we remain fully invested in both stocks and bonds in your portfolios here, as trends continue to be positive.  As always, should you be uncomfortable with your current risk levels we encourage you to share your concerns with us so we can take appropriate action in the context of your overall financial plans.

A reminder that our office does enjoy summer hours and we will be closed on Fridays at 1 pm in AZ.  We hope you have plans to get out and enjoy time in the fresh air with family this summer and will look forward to hearing about your adventures at our next meeting!

If you have questions, please contact us.

FINANCIAL PLANNING
COLLEGE AND TAX PLANNING
401(K) ALLOCATION
GRAPHIC OF THE MONTH

To download the June 2021 Newsletter: CLICK HERE