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July 2021
Market Update
(all values as of 04.30.2024)

Stock Indices:

Dow Jones 37,815
S&P 500 5,035
Nasdaq 15,657

Bond Sector Yields:

2 Yr Treasury 5.04%
10 Yr Treasury 4.69%
10 Yr Municipal 2.80%
High Yield 7.99%

YTD Market Returns:

Dow Jones 0.34%
S&P 500 5.57%
Nasdaq 4.31%
MSCI-EAFE 1.98%
MSCI-Europe 2.05%
MSCI-Pacific 1.82%
MSCI-Emg Mkt 2.17%
 
US Agg Bond 0.50%
US Corp Bond 0.56%
US Gov’t Bond 0.48%

Commodity Prices:

Gold 2,297
Silver 26.58
Oil (WTI) 81.13

Currencies:

Dollar / Euro 1.07
Dollar / Pound 1.25
Yen / Dollar 156.66
Canadian /Dollar 0.79
 

Macro Overview

Financial markets responded to news regarding the Delta variant mutation of Covid-19, as some countries in Europe reconsider easing restrictions on businesses and travel. Regardless, global equities finished the 2nd quarter on a positive note and interest rates stabilized following an upward trend earlier in the year.

A dearth of spending amidst stay-at-home orders during the pandemic left millions of consumers with abundant cash balances, which was a factor in the recent uptick in economic activity nationwide. Some economists question the sustainability of high levels of spending once the plentiful cash positions are depleted.

Comments by St. Louis Federal Reserve Bank member James Bullard suggested that there is a “housing froth that seems to be developing” and indicated that the Federal Reserve may pull back on mortgage bond purchases as early as 2022.

Half of home buyers in April who took out a mortgage put a 20% down payment, while a quarter of buyers paid in all cash, according to the National Association of Realtors. Cash offers, in addition to large down payments, are pushing some buyers out of the market, forcing many to rent until market conditions change.

There is growing concern that the Delta variant of Covid-19 may evolve into a dominant strain in the U.S. The reportedly highly-transmissible variant made up 30% of positive samples in the U.S. for the two-week period ending June 19th, according to the U.S. Centers for Disease Control and Prevention. The Delta mutation first emerged in India and has since spread worldwide, forcing some countries to reevaluate loosened restrictions on businesses, travel and public events.

An eviction moratorium for tenants set to expire on June 30th was extended to July 31st after a Supreme Court decision. The moratorium was initiated in August 2020 by the prior administration to help tenants who experienced financial hardships due to Covid-19. Landlords across the country subsequently saw months of non-payment by some tenants with the inability to evict them. The U.S. Department of Agriculture extended through July 31st a moratorium on foreclosures for properties financed by USDA Single Family Housing Direct and guaranteed federal loans.

The U.S. Drought Monitor shows that nearly ten percent of the United States is experiencing exceptional drought characteristics as of June 30th. Severe drought conditions are primarily affecting the western states even as excessive rains inundate other parts of the country. Food crops including wheat, corn and grains are expected to be affected, pushing prices higher in an already inflationary environment. (Sources: Labor Dept., U.S. Drought Monitor, NAR, USDA, Fed, CDC)

 
the cost of eating out has seen the largest increase in years

Equity Indices Post Positive Second Quarter – Domestic Equity Markets

The 2nd quarter ended positively for major global indices, with the S&P 500 index posting gains for 10 of the 11 sectors. Top performing sectors for the quarter included technology, communications, healthcare, and financials.

The SEC said that it is closely monitoring moves in the market caused by social media memes in order to determine whether there has been manipulative trading or other misconduct. It noted that it will act to protect retail investors if it uncovers violations of federal law.

Inflation, higher taxes, and the Delta variant are primary issues of concern for equity markets. There is some momentum in revenue and earnings growth for particular sectors, but not across every company or industry. (Sources: S&P, SEC, Bloomberg)

Rates Halt Upward Trend – Fixed Income Update

Treasury bond yields stabilized in the 2nd quarter after rising earlier in the year. Short-term rates rose slightly, resulting in a flattening yield curve, an indication of possible slower economic growth as the Fed considers raising rates in the near future.

Comments by St. Louis Federal Reserve member James Bullard indicated that the Fed may begin increasing rates in 2022 by purchasing fewer bonds through their asset purchase program. The Fed is expected to scale back on mortgage bond purchases prior to making changes to purchases of government bonds.

Rates on mortgages stood steady at 2.98% for a 30-year fixed conforming loan as of July 1, 2021 as posted by FreddieMac. Other consumer loans held steady as the Fed deliberated on potential future rate increases. (Source: U.S. Treasury, Federal Reserve, FreddieMac)

Going Out To Restaurants Has Become Expensive – Food & Dining Update

With pandemic concerns subsiding and government restrictions lifting, restaurants have seen a massive surge in business. While many restaurants suffered tremendous setbacks during the height of the pandemic, some reopened recently and re-hired employees who were laid off. Costs for food and labor both rose substantially since last year. Consequently, many restaurants are passing along higher costs in the form of more expensive menu prices.

The Bureau of Labor Statistics tracks prices on what consumers use regularly, such as food. It found that the cost of eating at restaurants, categorized by the Bureau as “food away from home,” increased the most relative to other food options. (Source: Bureau of Labor Statistics)

 
the u.s. birthrate fell 4% over the past year, the largest decline since 1973

Births In U.S. Fall Following Pandemic – Domestic Demographics

The Centers for Disease Control and Prevention reported that the U.S. birthrate fell 4% to about 3.6 million births over the past year, the largest decline since 1973.

Births have declined since the Great Depression as Americans married later in life and delayed having children. The pandemic exacerbated the birthrate decline due to a fear of visiting hospitals and lack of child care. Higher costs associated with raising children potentially had an impact, especially for those who were unemployed during the pandemic.

Economists expect that the drop in births due to the pandemic may have long-term consequences for the U.S. population, limiting growth relative to other developed countries.

Source: The Centers for Disease Control and Prevention

Dollar Share Of Global Exchange Reserves Drops To 25 Year Low – Currency Market Update

For decades the U.S. dollar has been the most dominant reserve currency in the world. The liquidity and transparency of the dollar versus other world currencies have made it attractive as the primary reserve currency for foreign governments and international trading entities.

Dollar supremacy has recently become more challenged as the U.S. struggles with a growing budget deficit and expanding Treasury debt, which can put downward pressure on a country’s currency. A weakening dollar may also become inflationary for U.S. consumers by limiting purchasing power, and may increase borrowing costs for the U.S. government.

The most recent data compiled by the International Monetary Fund (IMF) show the U.S. dollar representing 59% of global exchange reserves, down from 65% in 2016 and the lowest in 25 years. Other expanding economies, including China, have seen their currency gradually increase as a reserve currency status over the past few years.

Sources: IMF Currency Composition of Foreign Exchange Reserves, Federal Reserve

 
the average age of a car on U.S. highways is now 12 years old

It May Be Time To Review Homeowners Insurance Coverage – Consumer Awareness

As home values have increased, so has the need to review insurance policies to ensure appropriate coverage. It is recommended that homeowners review the current coverage on their insurance policies regularly in order to avoid under-coverage.

When reviewing homeowners insurance, there are two basic types of coverage: replacement cost and market value. Replacement cost is the cost necessary to replace your entire home based on an estimated cost of materials and labor. Market value is the amount that a buyer would pay to purchase your home and property in its current condition.

Replacement cost is preferred because it takes into account material costs that may not be reflected in a market value. Over the past year, the pandemic drove the costs of lumber and copper significantly higher, increasing replacement costs. Homeowners who plan to stay put rather than sell should review their policies for appropriate coverage. (Source: Consumer Financial Protection Bureau, U.S. Bureau of Labor Statistics; Producer Price Index by Commodity: Lumber and Wood Products: Softwood Lumber)

Average Age Of Autos On U.S. Highways Reaches 12 Years Old – Automotive Market Overview

Circumstances over the past year drove prices for used and new cars higher, shifting consumer buying behavior. Supply constraint issues for critical components required for autos and light trucks have made it challenging to purchase new automobiles. As a consequence, demand and prices for used cars have increased, causing many drivers to hold on to their existing cars.

The Bureau of Transportation Statistics identified that the average age of vehicles on U.S. highways is now 12 years old, a reflection of drivers holding on to their cars longer. Improvements in technology and efficiency over the decades has allowed more automobiles to reach higher mileage and keep running.

Source: Bureau of Transportation Statistics

*Market Returns: All data is indicative of total return which includes capital gain/loss and reinvested dividends for noted period. Index data sources; MSCI, DJ-UBSCI, WTI, IDC, S&P. The information provided is believed to be reliable, but its accuracy or completeness is not warranted. This material is not intended as an offer or solicitation for the purchase or sale of any stock, bond, mutual fund, or any other financial instrument. The views and strategies discussed herein may not be appropriate and/or suitable for all investors. This material is meant solely for informational purposes, and is not intended to suffice as any type of accounting, legal, tax, or estate planning advice. Any and all forecasts mentioned are for illustrative purposes only and should not be interpreted as investment recommendations.