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June 2021 Market & Economic Update

June 2021 Market & Economic Update

 

06/04/2021

 

www.SCapitalAdvisors.com

 

There is an old saying “Sell in May and Go Away”, the month of May has historically been flat for stocks, and this May was no exception. The S&P 500 rose just 0.47% this May. Although the Dow rose 1.93%, Nasdaq fell -1.53%, so May remained a “wash.” (Source: CNBC.com)


Year 2021 Returns (as of May 28)

 

US (S&P 500, Symbol: SPY)                              Up 12.3%

The Dow Jones (Symbol: DIA)                          Up 7.8%

The NASDAQ Composite                                  Up 2.8%

Europe (Euro Stoxx 50, Symbol: FEZ)              Up 6.7 %

Emerging Markets (Symbol: EEM)                   Up 3.4%

Bonds (Total Bond Index, Symbol: BND)          Down 2.6%

Gold (Symbol: GLD)                                           Up 0.01%

 

(source: cnbc.com)

 

The major stock market indices have been moving sideways since March. The sideways action seems to be driven by the conflicting themes in the market. On one hand, you've got impressive year-over-year progress on both the economic and earnings fronts. Yet on the other hand, traders are being forced to deal with "taper talk," concerns that higher inflation will force the Federal Reserve to stop buying Treasury and mortgage bonds (taper its purchases) or even raise interest rates sooner than expected.

 And about inflation: if you have tried to buy a house or a car or furniture or lumber you probably ran into low inventory and high prices. This low supply, for cars and furnishings and lumber at least, is a function of factories that were shut down during covid restrictions. And houses are also a function of very low listings as its hard to move when you have covid restrictions. Coupled with cash in peoples’ pockets from stimulus checks and from lack of spending all past year on travel and dinning it creates for higher prices. Our central banker, Jay Powell, says this is likely to be transitory inflation. We agree with that thesis since manufacturing should pick up and the higher prices in real estate should bring more listings to the market. and the lifting of covid restrictions bodes well for all the above.

 We’ve had some questions if the market will go down in the near term. This is always the concern of investors especially after what happened last March and in 2008-2009 and the tech bubble of 2000.  Our answer to this is that it’s a normal part of the market to have dips and corrections of usually around 10% during upward trends. This past September we had a 10.5% decline in the S&P 500 and in February we had a 5.7% dip and the Nasdaq 100 (full of the large tech stocks we tend to invest in) declined 12% from mid Feb to mid-March. (source: cnbc.com)  This is normal and will continue into the future. The key is if we are in a long-term upward trend and that’s our current outlook.

 Also, the US stock market tends to go down when it anticipates a recession, and we are coming out of the covid recession not going into one.  Therefore, companies have been reporting record profits and increasing their guidance for future sales and profits.  While we have certainly seen euphoria in things like crypto currencies, electric vehicle stocks, cannabis stocks, clean energy stocks, and meme stocks like GameStop and AMC, those have all declined from their recent highs and this self-correcting mechanism is a healthy sign. And unlike the past, these highly speculative areas have not come into the broad market.

 In the meantime, should you have any questions or would like to discuss your situation please don’t hesitate to let us know so we can set up a call or video conference or a meeting if need be.


Neal W. Mufti, CFP®                                                        M. Mike Iftaiha, CFP®

Managing Director                                                             Financial Advisor

Opinions expressed here are those of the authors. The information provided is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets. In general, the bond market is volatile as prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Past performance is not a guarantee of future results. Indexes cannot be invested in directly, are unmanaged and do not incur management fees, costs and expenses.

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S&P 500: The S&P 500 is an unmanaged index comprised of 500 widely-held securities
considered to be representative of the stock market in general.
DJIA: The Dow Jones Industrial Average (DJIA) is a price weighted index of 30 of the largest, most widely held stocks traded on the New York Stock Exchange.
NASDAQ: The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.
The Euro STOXX 50 Index is a market capitalization weighted stock index of 50 large, blue- chip European companies operating within Eurozone nations. Components are selected from the Euro STOXX Index which includes large-, mid- and small-cap stocks in the Eurozone.
The iShares MSCI Emerging Markets Index Fund seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of publicly traded securities in emerging markets, as represented by the MSCI Emerging Markets Index.
Total Bond Market (BND) is an exchange-traded fund (ETF) created by Vanguard to track the performance of Barclays U.S. Aggregate Float Adjusted Index, which is a broad, market-weighted bond index.
The SPDR Gold Trust (GLD) tracks the performance of the price of gold bullion, less the Trust's expenses.