Category: Monthly Commentary

Monthly Commentary

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%

April Market Commentary

Market Commentary

US stocks surged in April posting their best month since November on optimism over the economic recovery and a jump in corporate earnings.  With roughly 75% of S&P 500 companies reporting earnings to date, over 80% of companies have beaten analysts’ estimates. The vaccination rate continues to grow with roughly 45% of the US population vaccinated and new COVID-19 cases at their lowest level in months.  Economic news in April reflected a growing economy.  The March jobs report showed 916,000 new hires and the unemployment rate fell to 6%. Initial unemployment claims reached a post pandemic low.  Factory and service sector activity surged.  US auto sales are nearing levels seen before the pandemic and retail sales in March jumped 9.8%.  Reflecting the recent economic acceleration, consumer prices rose 2.6% in March over the past year.  US GDP grew at a 6.4% rate in the first quarter bringing the economy within 1% of the level it reached prior to the pandemic.  Household income soared 21.2% in March driven by stimulus payments.

Foreign stocks climbed on expectations of a continued economic rebound, but COVID-19 continues to be a significant problem globally with surging cases in Japan, Brazil, and India.  The European Union (EU) has struggled to vaccinate its population with only 21% of its citizens receiving at least one vaccine to date, but the EU is targeting having 70% of its population vaccinated by July.  The European Central Bank (ECB) left their benchmark interest rate and bond buying program unchanged after their April meeting and said they would likely remain supportive longer than the Fed.  Economic numbers are improving with Eurozone factory activity growing at its fastest pace in over two decades.  OPEC and others affiliated with the group agreed to increase oil production by over two million barrels a day on expectations of an economic rebound.  China reported first quarter growth of 18.3%, a record, putting it well ahead of its 6% targeted pace for the year.  Emerging markets trailed developed markets over the month and year to date, but outpaced developed markets over the trailing twelve months.

Bonds saw gains over the month as interest rates took a step back.  Minutes from the Fed’s March meeting showed the group continued to remain dedicated to supporting the economy and was not concerned with the potential for inflation.  At their April meeting they left their policies unchanged.  Fed Chair Powell said the Fed would cut bond purchases “well before” raising the Fed Funds Rate. The 10-year Treasury yield ended the month at 1.65% down from 1.74% to start the month.  Credit bonds led the way over the month and year to date.  Longer term bonds topped shorter term bonds in April, but shorter term bonds have outpaced so far in 2021.

Index PerformanceAprilYear to DateTrl. 12 Months
US Stocks (Russell 3000)5.15%11.83%50.92%
Foreign Stocks (FTSE AW ex US)3.01%6.89%44.43%
US Bond Mkt. (BBgBarc Int. Gov/Cred)0.50%-1.37%1.09%
Municipal Bonds (BBgBarc 1-10 Yr Muni)0.42%0.21%5.03%
Cash (ICE BofA ML 3-Mo T-Bill)0.00%0.03%0.11%

March Market Commentary

Market Commentary

US stocks climbed to new record highs in March driven by another round of fiscal stimulus and improving vaccination numbers.  The $1.9 trillion American Rescue Plan was signed into law providing checks for individuals, funds for municipalities, and additional funding for vaccination efforts.  Vaccine doses have reached 2 million per day in the US and all adults should be eligible for vaccines by May 1st.  New COVID-19 cases remained at lower levels during the month.  Economic news showed an economy steadily accelerating.  Manufacturing activity increased at its fastest pace since the start of the pandemic, and service sector activity expanded for the 9th consecutive month. Jobs data continued to improve with 379,000 new hires in February and January’s hiring numbers were revised higher.  The unemployment rate dropped to 6.2% and weekly initial jobless claims dropped to 658,000 at the end of the month, the lowest level since the pandemic began.  Consumer confidence hit its highest level since March of last year.

Foreign stocks rose on optimism over an economic rebound.  However, Europe is still struggling to get a hold of COVID-19. Rising cases drove Germany, France, and Italy to reinstate lockdowns during the month.  The ship that was stuck in the Suez Canal snarling global shipping and supply chains for six days was finally freed.  At the conclusion of the ECB’s meeting, they announced they would increase the pace of eurozone bond purchases given the recent rise in interest rates and left its benchmark interest rate unchanged. OPEC and its allies kept production cuts in place when most economists were expecting an increase.  Oil prices hit their highest levels since April of 2019 before cooling off later in the month.  China said it would target 6% growth for the year, which is comfortably lower than the 8% expected by most of the world’s economists.  Emerging markets trailed developed markets over the month and first quarter, but outpaced developed markets over the trailing twelve months.

Bonds declined over the month as interest rates continued their climb higher on the expectation of strong economic growth this year.  After the Fed’s March meeting, they pledged to maintain their easy money policies well into the future and did not express concern over the recent increase in interest rates.  They also raised their economic outlook, expecting growth of 6.5% in 2021. In Congressional testimony, Fed Chair Powell said the US still had a long way to go to recover and that he did not believe the recently passed stimulus bill would lead to excessive inflation.  The 10-year Treasury yield ended the month at 1.74% up from 1.44% at the end of February.  It’s the highest level of the year and its highest point since January of last year.  Over the month and quarter muni and Treasury bonds were the top performing sectors, while over the trailing year credit bonds led the way.  Longer term bonds trailed shorter term bonds in March and the first quarter, while over the last twelve months performance was mixed based on sector.

 

Index PerformanceMarch1QTrl. 12 Months
US Stocks (Russell 3000)3.58%6.35%62.53%
Foreign Stocks (FTSE AW ex US)1.48%3.77%50.97%
US Bond Mkt. (BBgBarc Int. Gov/Cred)-0.78%-1.86%2.01%
Municipal Bonds (BBgBarc 1-10 Yr Muni)0.37%-0.21%4.39%
Cash (ICE BofA ML 3-Mo T-Bill)0.01%0.02%0.12%

February Market Commentary

Market Commentary

US stocks bounced back in February on optimism over the economy and additional fiscal stimulus, but ended on a down note as interest rates climbed to end the month.  The House passed the $1.9 trillion stimulus relief bill, and it is headed to the Senate.  The stimulus would provide significant support for the economy after household income climbed 10% in January as a result of the December stimulus bill.  With 96% of S&P 500 companies reporting earnings to date, earnings are on track to rise by 3.6% in the fourth quarter, when a decline of 11% was expected.  In addition, new COVID-19 cases plummeted over the month with the average seven day rate at its lowest level since October.  Economic news was generally positive over the month.  The January jobs reports showed the economy moved back to adding jobs and the unemployment rate fell to 6.3%.  In addition, initial jobless claims fell over the month and hit their lowest level since November. Service sector activity rebounded more than expected in January and consumer confidence rose in February for a second straight month.  Retail spending rose 5.3%, the most in seven months, and manufacturing activity continued to expand.

Foreign stocks climbed in February on optimism over global economic growth.  To date, the impact of targeted lockdowns in Europe seems less severe than those employed earlier in the pandemic.  Manufacturing activity improved and business and consumer sentiment picked up in the region.  OPEC issued a statement asking member countries to maintain production cuts.  Oil prices jumped 18% to $61.50 a barrel over the month.  India announced plans to boost economic growth and healthcare spending. Global central banks continued to be accommodative with the latest example being South Korea.  The country elected to keep its benchmark interest rate at a historic low.  Emerging markets trailed developed markets over the month, but outpaced developed markets over the trailing twelve months.

Bonds fell over the month as interest rates moved sharply higher on optimism over the economic recovery.  Meeting minutes from the Fed’s January meeting showed officials agreed to continue to hold the Fed Funds Rate near zero and to maintain the current level of bond buying.  While they thought that there may be an increase in inflation, they didn’t believe it would be long lasting.  In Congressional testimony, Fed Chair Powell reiterated the Fed’s plans to keep the Fed Funds rate low for the foreseeable future as “the economy is a long way from our employment and inflation goals.”  The 10-year Treasury yield rose to over 1.5% before settling at 1.44%, its highest level since February of last year.  The benchmark rate has climbed from 0.93% to start the year.  Over the month agency bonds were the top performing sector, while over the trailing year, credit bonds led the way.  Longer term bonds trailed shorter term bonds in February and over the last twelve months.

Index PerformanceFeb.Year To DateTrl. 12 Months
US Stocks (Russell 3000)3.13%2.67%35.33%
Foreign Stocks (FTSE AW ex US)2.03%2.26%27.32%
US Bond Mkt. (BBgBarc Int. Gov/Cred)-0.82%-1.09%2.35%
Municipal Bonds (BBgBarc 1-10 Yr Muni)-0.92%-0.58%1.54%
Cash (ICE BofA ML 3-Mo T-Bill)0.01%0.02%0.40%