We wanted to reach out and provide you with some updates as we head into the second half of the year. We are back at work in our Medford office, continuing to schedule phone and Zoom meetings for clients who prefer to maintain social distancing. Please feel free to reach out to the office to schedule a review of your portfolio or financial situation at your convenience.
Continued Economic Recovery
Major market indices enjoyed a fruitful June, building on their year-to-date (YTD) figures. The S&P 500 is up 14.4% YTD as of June 30th. The bond market (Barclay’s Aggregate Bond) gained back ground from April lows to end the month with a -1.60% YTD figure. The bond market has gained ground as fears of rapid inflation have subsided. Rising rates do tend to cause short-term bond price declines. The expectation of eventual rising rates are likely to provide a headwind to broad market bond prices over the near future.
The jobs data has been heavily in focus. Weekly reports have fluctuated between higher and lower figures as compared to expectations. Overall, hiring is up and workers are returning to the labor market. Not every industry is finding enough workers to fill as many positions offered as they would like, but this is to be expected from an economy that is restarting from pandemic shutdowns. Hiring is expected to increase as children return to school and parents can shift from childcare responsibilities to paid work. Changes to unemployment compensation and a lessened risk of virus exposure are additional major factors that will help push workers to return to the labor market. A number of workers are shifting between industries or employers, looking for higher wages or a better work conditions from employment. It will take some time for these shifts to slow and a more normal hiring pattern to resume. Lastly, it remains to be seen how much of an effect virus induced early retirement will affect the labor market. The key component to all of these factors is time.
Inflation has obviously been a big topic in the news over the past few months. There is simply more money in the economy right now due to various stimulus efforts. These additional funds are chasing fewer goods as manufacturing comes back online and transportation of goods is restarted. We are also seeing shifts in buying patterns across larger than usual sections of the consumer market as people shift to post-pandemic life. These changes have combined to push up prices in some areas, but we are also seeing offsets in slowing sectors. For example, lumber made many headlines with spectacular price increases in 2020 and into early 2021. Those prices have now retreated significantly as stockpiling and home improvement activity has decreased. Not all sectors will see such dramatic swings, but we will continue to see shifts as spending habits change. The next CPI (Consumer Price Index) reading is on July 13th. We will continue to watch these readings for signs of inflation, be they transitory or more long lasting.
Interest Rate Hike Potential
The markets were recently shaken by the potential rise in interest rates in early 2023. The announcement of higher interest rate guidance seemed to come as a surprise to many market participants. In a truly healthy economy, rates should not be this low. While the announcement may have been unwelcome news for some, we believe most market participants knew it was coming sooner or later. Whether we see measured increases begin in 2022 as some analysts have speculated, or further out into 2023, rate increases are to be expected when at historic lows. Measured increases will have effects on the market, but the effects are expected to be measured as well.
The Summer Stock Market
Historically, the market is a bit softer during the summer months, though there’s always the possibility that this year could be the exception. The market is looking for continued solid jobs data and some news on the inflation front. Restarting an economy does not happen in a day. Supply chain bottlenecks for some goods, uneven hiring, consumers and workers reevaluating priorities, and outbreaks of COVID in unvaccinated communities both here and abroad are all issues that should be expected to affect the path of economic recovery.
Keeping tabs on the long-term is where success historically lies in the markets. Client portfolios remain positioned for the long-term. We will continue to evaluate recovery impacts on market sectors and how that affects portfolios. As always, please feel free to reach out with any questions you may have.
The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied upon for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a solicitation of the purchase or sale of any securities