Category: Monthly Commentary

Monthly Commentary

September Market Commentary

Market Commentary

US stocks pulled back to end the third quarter over a bevy of concerns to post the worst monthly performance since March 2020. Worries over the Delta variant, global growth, reduced central bank support, a stalemate in Congress, and China’s real estate market all weighed on stock values. Economic news was mixed over the month pointing towards slower growth. While manufacturing increased, retail sales rose 0.7%, and durable goods orders were stronger than expected, job growth disappointed in August with only 235,000 hires, less than half of what was expected. The unemployment rate still fell to a new pandemic era low of 5.2% from 5.4%. The Fed reported a softening in economic activity in July through August, consumer sentiment ticked down, and business activity cooled. The CPI rose 0.3% in August compared to July, lower than projected and down from the pace of recent months. On an annual basis, inflation is up 5.3%. Oil surged over the month climbing 9.5% to end at $75.03 a barrel, its highest level since 2014, as supply remains limited.

Foreign stocks fell in September due to many of the same issues seen in the US. At the conclusion of its meeting, the European Central Bank said it would keep monetary policy loose for some time, but would conduct bond purchases at a “moderately lower pace” over the next three months to reflect improving prospects for the eurozone. China’s manufacturing activity contracted in September for the first time since the start of the pandemic, while some growth was still expected. In addition, several economic indicators slowed sharply in August. Retail sales grew 2.5%, significantly short of expectations, home sales fell and construction starts declined. China Evergrande Group, China’s second largest real estate developer, was on the precipice of failure due to being over levered and drove concerns of a worldwide crisis, shaking stock markets. Emerging markets trailed developed markets over the month, quarter, and year to date.

Bonds fell in September as the Fed announced it was planning to begin to reduce support for the economy. The Fed signaled after its September meeting it was likely to begin cutting back on its bond purchase program in November. They expect a gradual reduction in bond purchases that ends by mid 2022. In addition, they could raise the Fed Funds Rate as soon as next year with rate increases faster and more pronounced than they were projecting earlier this year. Fed Chair Powell said the recent increase in inflation might last longer than the Fed initially anticipated. The 10-year Treasury yield continued to climb in September to finish the month at 1.52%, up from 1.31% at the end of August and at its highest level since June. Agency bonds were the top sector for the month and quarter, while Muni and credit bonds led the way for the year to date. Shorter term bonds topped longer term bonds in September, over the third quarter, and for the year to date.

Index PerformanceSeptember3QYear to DateTrl. 12 Months
US Stocks (Russell 3000)-4.49%-0.10%14.99%31.88%
Foreign Stocks (FTSE AW ex US)-3.04%-2.62%6.72%25.06%
US Bond Mkt. (BBgBarc Int. Gov/Cred)-0.57%0.02%-0.87%-0.40%
Municipal Bonds (BBgBarc 1-10 Yr Muni)-0.46%0.01%0.33%1.15%
Cash (ICE BofA ML 3-Mo T-Bill)0.01%0.01%0.04%0.07%

August Market Commentary

Market Commentary

US stocks surged to new record highs in August on great corporate earnings and reassuring comments from the Fed. With nearly all S&P 500 companies reporting earnings to date, 88% have beaten analyst forecasts and earnings have risen 95% from a year earlier. Economic news was positive over the month despite the growing COVID infection rates brought on by the Delta variant. Job growth continued to improve in July with 943,000 jobs added, the largest number in 11 months, and June’s hiring number was revised higher. The unemployment rate fell to 5.4% from 5.9% despite more workers looking for employment. Manufacturing and service sector activity remained strong in July. Retail sales fell 1.1% and small business confidence fell to its lowest level since the early spring over concerns of the impact the Delta variant might have on business. CPI rose 5.4% from a year ago in July in line with estimates. However, it only rose 0.5% in July over June compared to June’s 0.9% monthly increase. Home prices have continued to climb on low inventory as they have gained 18% from a year ago. Second quarter GDP growth was revised up to 6.6% from 6.5%.

Foreign stocks posted gains over the month despite the spread of the Delta variant on solid earnings and economic news. Second quarter earnings for European companies are expected to soar 152% from a year ago and revenue results have well outpaced analyst estimates. Eurozone manufacturing and service sector activity increased in July, but at a slower pace. The Bank of England kept its benchmark interest rate and bond buying program steady and may begin to unwind its bond buying program earlier than planned if the economy continues to improve. Recent economic readings in China have disappointed with growth in industrial, consumer, and investment activity slowing in July more than expected. In addition, China’s service sector activity fell into correction territory in August for the first time since February 2020. The reading fell well short of expectations. Despite the weak economic numbers in China, emerging markets topped developed markets over the month, but have heavily trailed over the year to date.

Bonds edged down in August as interest rates ticked higher driven by Fed comments. In a highly anticipated speech, Fed Chair Powell said he expected to begin reducing the Fed’s bond purchase program later this year and expected that the current surge in inflation will abate over time. He stressed the Fed shouldn’t overreact to the recent jump in prices. Minutes from the Fed’s July meeting echoed these sentiments. The 10-year Treasury yield rose over the month for the first time since March, settling at 1.31% after starting the month at 1.24%. Performance was mixed across sectors, but lower credit quality issues led the way. Shorter term bonds topped longer term bonds in August and over the year to date.

Index PerformanceAugustYear to DateTrl. 12 Months
US Stocks (Russell 3000)2.85%20.39%33.04%
Foreign Stocks (FTSE AW ex US)1.98%10.07%26.05%
US Bond Mkt. (BBgBarc Int. Gov/Cred)-0.16%-0.30%0.17%
Municipal Bonds (BBgBarc 1-10 Yr Muni)-0.09%0.79%1.72%
Cash (ICE BofA ML 3-Mo T-Bill)0.00%0.03%0.08%

July Market Commentary

Market Commentary

US stocks saw another month of steady gains in July driven by strong corporate earnings and positive, albeit slowing, economic numbers. Of the 195 S&P 500 companies to report earnings to date, 91% have beaten analyst forecasts. Economic news showed a still growing economy, but at a slower pace. Job growth accelerated in June with 850,000 new hires topping expectations for the largest gain in 10 months. The unemployment rate ticked up to 5.9% from 5.8%, but it was a result of more workers entering the workforce. Auto sales rose and the average sales price hit a record. Retail sales rose 0.6%, above expectations, and business activity expanded. Consumer confidence hit its highest level since the pandemic. Inflation remained high, gaining 5.4% in June, the highest year over year gain since 2008. Home prices continued to surge in June with median home prices reaching another record, up 23% from a year ago. GDP grew 6.5% in the second quarter exceeding its pre-pandemic size, but the rate of growth was below expectations.

Foreign stocks fell on concerns over the Delta variant and a China tech crackdown. The ECB left their benchmark interest rate unchanged after their meeting and said they would keep the benchmark rate at or below its current level until they see inflation stabilize around 2%. OPEC and Russia led oil producers agreed to restore all the cuts that were made to production during the pandemic. China’s economy grew 7.9% in the second quarter, in line with estimates, and the country had better than expected numbers on factory output, retail sales, and capital investment. However, China initiated a regulatory crackdown on Chinese internet and technology companies over improper antitrust and consumer protection practices during the month, which drove significant declines for China’s stock market. Emerging markets heavily trailed developed markets over July and the year to date as a result.

Bonds continued their rally in July as interest rates fell further. At the conclusion of the Fed’s July policy meeting, they said the economy has made progress towards their low unemployment and stable inflation goals and would “assess progress in coming meetings.” Many expect the Fed could start tapering their bond purchases later this year. The 10-year Treasury yield dropped further in July to settle at 1.24% compared with 1.45% to start the month and is down from 1.74% at the end of March. Treasury bonds led the way over the month, while Muni bonds were the top performer for the year to date. Longer term bonds topped shorter term bonds in July, but shorter term bonds have outpaced over 2021.

Index PerformanceJulyYear to DateTrl. 12 Months
US Stocks (Russell 3000)1.69%17.06%38.73%
Foreign Stocks (FTSE AW ex US)-1.52%7.93%29.09%
US Bond Mkt. (BBgBarc Int. Gov/Cred)0.77%-0.14%0.27%
Municipal Bonds (BBgBarc 1-10 Yr Muni)0.57%0.88%1.71%
Cash (ICE BofA ML 3-Mo T-Bill)0.01%0.03%0.08%

June Market Commentary

Market Commentary

US stocks continued their ascent in June, closing the month out at an all time high on the strength of economic news, reduced inflation fears, and hopes for additional stimulus. The President and a group of Senators reached a $1 trillion infrastructure plan after weeks of negotiations, however the likelihood and timing of passage are uncertain. Vaccinations continue with roughly 65% of the eligible US population over age 12 vaccinated, however the recent pace of vaccinations has slowed considerably. June economic news continued to show a generally improving economy. US job growth picked up pace in May with 559,000 jobs added, but was short of expectations. The unemployment rate fell to 5.8% from 6.1%. Manufacturing activity picked up pace and topped expectations. US home prices rose 24% in May from a year earlier and consumer confidence rose. On the other hand, US CPI rose 5% in May. It was the largest jump in 13 years, while core prices rose 3.8%, the most since 1992. Retail sales fell 1.3%, and the reading on durable goods orders disappointed.

Foreign stocks fell over the month as progress on vaccinations was countered by significant spread of the Delta variant of the coronavirus. The new highly contagious variant has slowed reopening plans, and, as a result, economic growth around the world. France, Italy, and Spain have extended government support measures for businesses as the region continues to struggle to bounce back from the pandemic. The ECB upgraded its economic forecast for the region, but said it would keep its aggressive monetary policies in place. Despite the headwinds, eurozone business activity is growing at the fastest pace in 15 years. China’s economy has cooled recently. While factory output remained strong, investment and domestic consumption were below expectations. China’s factory activity eased slightly in May, but was in line with expectations and the non-manufacturing sector improved. Emerging markets trailed developed markets over the quarter and year to date, but outpaced developed markets in June and over the trailing twelve months.

Bonds rose in June as investors began to doubt the recent uptick in inflation will be durable. After the Fed’s June meeting they estimated they would begin raising the Fed Funds Rate by the end of 2023, earlier than they previously projected. In prepared testimony before Congress, Fed Chief Powell said he expected job growth to improve in the coming months and inflation pressures to ease. The Fed also announced it would begin to unwind the corporate bond ETFs it purchased last year as part of its emergency measures with the holdings being liquidated by the end of the year. The 10-year Treasury yield continued to fall in June to end at 1.45%, down from 1.58% to start the month. It has fallen notably from the highs for the year reached in late March. However, it is up from 0.93% to start the year. Credit bonds led the way over the month and quarter, while Muni bonds were the top performer for the year to date. Longer term bonds topped shorter term bonds in June and the second quarter, but shorter term bonds have outpaced so far in 2021.

Index PerformanceJune2QYear to DateTrl. 12 Months
US Stocks (Russell 3000)2.47%8.24%15.11%44.16%
Foreign Stocks (FTSE AW ex US)-0.54%5.62%9.59%36.79%
US Bond Mkt. (BBgBarc Int. Gov/Cred)0.08%0.98%-0.90%0.19%
Municipal Bonds (BBgBarc 1-10 Yr Muni)0.05%0.51%0.31%2.19%
Cash (ICE BofA ML 3-Mo T-Bill)0.00%0.00%0.02%0.09%

May Market Commentary

Market Commentary

US stocks climbed in May, for a fourth straight month of gains, on optimism over the economic recovery and strong corporate earnings. With nearly all S&P 500 companies reporting earnings, over 86% of companies have beaten analysts’ estimates the highest rate of outperformance since it was first tracked in 2008. The vaccination rate continues to grow with roughly 60% of the eligible US population vaccinated. Economic news in May was mixed showing that it won’t be a smooth climb out from the pandemic. US Job growth dropped sharply in April with 266,000 jobs added. Well below the one million increase in jobs expected. In addition, March’s hiring level was revised down. The unemployment rate rose to 6.1% in April from 6.0% in March. However, initial weekly unemployment claims hit new post-pandemic lows in May giving hope to better results with the May report. US consumer prices climbed a more than expected 4.2% over the past year for the largest jump in inflation since 2008. However, if the effects of price declines that occurred last April are removed, prices increased 0.8% in April. Home price growth reached a 15 year high in March and home prices were up 10% from a year earlier in 89% of metro areas. Consumer spending rose 0.5% in April and manufacturing activity continued to increase.

Foreign stocks surged over the month on optimism over the economic recovery. After struggling to get mass vaccinations underway earlier in the year, Europe has picked up the pace and still hopes to have 70% of its population vaccinated by July. Eurozone manufacturing activity climbed in April and the country bloc said it would allow vaccinated tourists to begin visiting the region. Japan’s economy shrank 1.3% in the first quarter due to a surge in the coronavirus that reduced consumption. China has also seen its rate of vaccinations surge in May, leading the world in daily administered doses. China’s consumer spending fell short of expectations in April and China’s producer price index rose 6.8% in April the fastest pace since 2017 and raising fears of a global acceleration in inflation. Emerging markets trailed developed markets over the month and year to date, but outpaced developed markets over the trailing twelve months.

Bonds continued to rebound in May as investors felt more comfortable that the Fed would not speed up its timeline for reducing support for the economy. Despite the recent increase in inflation, several Fed Governors reiterated their stance that the Fed would be patient in reducing its bond buying program or raising the Fed Funds rate. However, the Fed’s April meeting minutes showed the central bank did want to discuss at a future meeting a plan on how it would begin to reduce its bond buying program given the strong economic numbers and recent high inflation readings. The 10-year Treasury yield declined over the month to end at 1.59% down from 1.65% to start the month marking two months of declining yields. Credit bonds led the way over the month and year to date. Longer term bonds topped shorter term bonds in May, but shorter term bonds have outpaced so far in 2021.

Index PerformanceMayYear to DateTrl. 12 Months
US Stocks (Russell 3000)0.46%12.34%43.91%
Foreign Stocks (FTSE AW ex US)3.19%10.30%43.83%
US Bond Mkt. (BBgBarc Int. Gov/Cred)0.40%-0.98%0.73%
Municipal Bonds (BBgBarc 1-10 Yr Muni)0.05%0.26%2.54%
Cash (ICE BofA ML 3-Mo T-Bill)0.00%0.03%0.11%