Why are tacos getting so expensive? #FreeBritney
Why are tacos getting so expensive? #FreeBritney
What the Market? - Jun 27, 2021
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What the Market?
Mr. Market does as Mr. Market does as he continues his seemingly random walk down Wall Street. It appears that he’s keeping up with the overload of economic information that has been released. Tech and growth stocks have narrowed the gap with value indices as the US economy further reopens and the Fed gives some clear signals at its priorities.
What’s driving the market?
Do you want to hear more about inflation? Of course not, but here we are... On Friday, the Bureau of Economic Analysis (BEA) released May’s Personal Consumption Expenditures Price Index (PCE), which is the Fed’s preferred method for inflation tracking. PCE rose by 0.5% (compared to 0.7% in April) to its highest level in 30 years at a rate of 3.4% per annum. The increase was in line with analyst expectations and equity markets did not react much to the news however, bond yields naturally drifted higher. Driving the increase in core inflation was energy (+27.4% YoY); crazy to think oil prices were negative roughly a year ago! Food products were only up 0.4% but tell that to the restaurants who are pushing costs to consumers with 5%+ increases! The Fed insisted that it will respond to shortfalls in unemployment and will keep interest rates as is until the labor market recovers.
Let’s see how the Jobby Trees are growing!: On Friday, the Labor Department will release its June employment report. Here’s what analysts are expecting:
Accelerated hiring in hospitality and retail driven by the reopening and traditional uptick in summer demand
Non-farm payrolls are expected to have grown by 700K in June (the highest reading of the quarter) and could drive the unemployment rate down to ~5.6%
Are we there yet? Not quite, even with a strong step in the right direction, there are still ~7M less Americans in the labor market than before the Pandemic. Oddly enough, numerous services and manufacturing companies have cited shortages of qualified labor to fill positions. The mismatch in labor supply may lead to higher wages as companies work to attract human capital and counteract COVID fears with enhanced benefits.
What’s an investor to do?
Investor mindset
Cities are reopening, the economic machine is beginning to run on its own again, and in Fedspeak, the Fed has made it clear that they will not touch interest rates until the labor market recovers. The emotional swings of hope and fear investing, and twitter tirades appear to be mostly behind us as economic data has taken the driver’s seat. It’s not a bad market to play.
Continue monitoring the situation, trust your portfolio and the direction those plays will be partaking in the coming months. After a strong bullrun over the past few months it is normal and healthy to have some retracement. Don’t fret if things go sour every now and then.
Portfolio management
The NASDAQ made a comeback over the last few weeks, recouping most of its lost ground over the past year against other indices. It appears that investor confidence in growth and tech is returning as we get back to a “new-normal.”
The story of 2021 appears to be driven by economic data, a dovish Federal Reserve and increased government spending. As climate change and infrastructure take the center stage in the US political agenda, consider rebalancing exposure towards longer-term value plays that may benefit from the upcoming economic reopening drivers (e.g., infrastructure, clean tech and consumer cyclicals).
Keep an eye on the economy
Focus on the June employment report and the consumer confidence report released by the Conference Board on Tuesday. Consumer sentiment is expected to increase as the economy reopens and we head into the summer months with one of the highest personal saving rates in recorded history. The headline index is expected to hit 119 vs 117.2 in May and would represent the second highest level in nearly two decades. The wider acceptance of inflationary pressures may have helped boost consumers’ understanding of the value of their savings and spending power over time. Meaning, spend more now while your money is worth more. Increased confidence is also a signal of the end of COVID-induced uncertainty.
Economic Calendar:
Monday: Fed speech, Dallas Fed Manufacturing Business Index
Tuesday: Eurozone consumer and industrial confidence, US housing data, Redbook index and consumer confidence
Wednesday: Chinese PMI, UK GDP revision, Eurozone CPI, US ADP Employment change, Chicago Purchasing Managers’ index
Thursday: UK and Eurozone manufacturing PMI, Eurozone unemployment rate, US Jobless claims, Manufacturing PMI
Friday: US employment reports, trade balance, factory orders and labor data
If you didn’t know, now you know
No one seems to be talking about it, but remember the atrocious conditions of migrant children in US detention centers at the border? They were there long before Trump, but became a central issue during his presidency. Guess what...they’re still there. Let’s talk about that.
This summary only covers the surface of the conflict. To read more, click here.
What we’re vibing:
Lupin on Netflix - Lupin is basically the James Bond of thieves, he’s Danny Ocean, Rusty Ryan and the whole gang wrapped into one super thief and he’s going to steal some insane shit to figure out who framed his old man.
Sam Henshaw, this young musician has got some soul. He’s toured with Chance the Rapper, James Bay, and Allan Stone and how have I not heard about him till recently. Kick back with some beautiful tunes.
Sesame Street Tackling Anti-Asian Racism early
Resources
WTM Mentions Performance Tracker
A content guide to investing (books, books, books!)
Disclaimer
This writing is for informational purposes only and the author/s undertake/s no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. The author/s expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.