Wright Financial, LLC

395 Taylor Blvd., Suite 107

Pleasant Hill, CA  94523

925.246.7982

www.mwrightfinancial.com

June 2021
Market Update
(all values as of 05.31.2021)

Stock Indices:

Dow Jones 34,529
S&P 500 4,204
Nasdaq 13,748

Bond Sector Yields:

2 Yr Treasury 0.14%
10 Yr Treasury 1.58%
10 Yr Municipal 0.97%
High Yield 4.24%

YTD Market Returns:

Dow Jones 12.82%
S&P 500 11.93%
Nasdaq 6.68%
MSCI-EAFE 9.03%
MSCI-Europe 11.95%
MSCI-Pacific 4.18%
MSCI-Emg Mkt 5.38%
 
US Agg Bond -2.29%
US Corp Bond -2.85%
US Gov’t Bond -2.95%

Commodity Prices:

Gold 1,909
Silver 28.14
Oil (WTI) 66.91

Currencies:

Dollar / Euro 1.21
Dollar / Pound 1.41
Yen / Dollar 109.42
Dollar / Canadian 0.82

Macro Overview

Financial global markets are draw­ing sup­port from the effectiveness of ongoing vaccinations and improving economic indicators. Consumer sentiment is re-evolving, resulting in rising consumer demand as pandemic worries wane. Pent up demand from the past year is thought to be driving the bulk of economic activity.

Ransomware cyberattacks and internet crimes have been rising at an alarming rate according to the FBI, threatening companies, government entities and individuals. Digital currencies, such as bitcoin, are the primary form of payment utilized for ransom and extortion cases since payments can be made anonymously and are not traceable. The FBI encourages individuals, especially elders, to be aware of numerous online scams and phone calls by visiting its Common Scams & Crimes site https://www.fbi.gov/scams-and-safety/common-scams-and-crimes.

Escalating inflation concerns prompted Federal Reserve members to consider limiting purchases of Treasury and mortgage bonds, which is an indirect method of raising interest rates. The reduction in stimulus efforts, also known as tapering, last occurred in 2013.

The administration released a proposed $6 trillion federal budget for the upcoming fiscal year, expected to be funded by higher taxes for top earners and corporations. Analysts, as well as nonpartisan analysis, expect additional issuance of Treasury debt in order to help fund ongoing federal deficits.

Various states are ending supplemental unemployment benefits which were instituted during the early months of the pandemic last year. It is estimated that 3.7 million unemployed recipients will be affected. Some states eliminating unemployment benefits are instead offering financial incentives for individuals to find a job. The Department of Labor’s most recent data reveal that there were over 8 million unfilled job openings at the end of March, the largest number of openings since November 2018.

The upward trajectory of home prices has made it less affordable for many to purchase, forcing some would-be home buyers to rent instead. Rising home values have resulted in rising rent costs nationwide, as lacking home supplies have spurred demand for rentals.An increase in travel has spurred higher fuel costs for airlines and automobiles as pent up demand and the summer months propel prices higher. The average cost for a gallon of regular gasoline rose above $3 per gallon nationally in May, the highest since 2014. Crude oil prices, which directly affect the price of gasoline, have risen over 80% in the past year. (Sources: FBI, Federal Reserve, EIA, Dept. of Labor)

 
the eia forecasts consumers will spend 31% more on gasoline this summer

Inflationary Pressures Affect Equities – Equity Market Update

Inflation pressures have been a minimal hindrance on the equity markets thus far, as many companies are passing along higher production and material costs to customers while still maintaining margins.

International equity markets, including developed and emerging, are recapturing momentum lost during the pandemic, elevating returns comparable to those in the U.S. markets.

Sectors leading the S&P 500 Index in May include energy, financials, industrials, and materials, representative of economic expansion as deemed by economists and analysts. Expansion in these sectors tend to influence other sectors as growth dynamics transition from industry to industry. (Sources: S&P, Bloomberg)

Fed Tapering is Concerning Bond Markets – Fixed Income Market

Comments by Federal Reserve members are hinting that the Fed is considering pulling back on Treasury and mortgage bond purchases, which is known as tapering. The last time the Fed slowed stimulus or pulled back on quantitative easing (QE), was in 2013, resulting in a so-called “taper tantrum.”

A curtailment in stimulus efforts by the Fed is expected to eventually result in rising bond yields, higher mortgage rates and increased loan expenses for consumers. Historically, rising interest rates have been the Fed’s most useful tool in mitigating inflationary pressures, which has recently become a focal point for the Fed. (Sources: Federal Reserve, U.S. Treasury)

Travel Picks Up – Travel & Leisure

The proliferation of vaccinations, along with pent up demand for travel has driven Americans to finally leave home and head out. The Transportation Security Administration (TSA) essentially tracks and counts every traveler passing through a TSA security checkpoint in every airport nationwide. The compiled data over the past year shows a dramatic downturn in travel in May 2020 with just over 176,000 daily travelers versus 1,500,000 daily travelers in May 2021.

Airlines, car rental agencies, restaurants, and hotels tend to benefit the most with an uptick in travel, which has been nearly dormant for the past year. The increase in travel also creates new jobs for the hospitality and travel industries, which were severely hit during the height of the pandemic.

The U.S. Energy Information Administration (EIA) is expecting U.S. highway travel to rise by 15% this summer, from last summer.The EIA also forecasts that consumers will increase their spending on motor gasoline by about 31% this summer due to increased travel as the pandemic subsides.

Source: https://www.tsa.gov/coronavirus/passenger-throughput, EIA

 
gasoline rose roughly 50% over the past year

How Inflation Creeps Up On Consumers – Consumer Behavior

Over the past year, global economies went from a slow expansion at the beginning of 2020, to an abrupt halt with the onset of the pandemic in March 2020. Supply chain bottlenecks have become rampant as increasing demand has evolved from a slowly recovering global economy. Historically, rising producer prices have been a predecessor to consumer inflation when manufacturers and distributors pass along the higher cost of materials and labor to consumers in the form of higher retail prices. A lack of critical components for everything from automobiles to cellular phones brought about production shortages that led to decreases in supply simultaneously as demand fell across the globe. As demand has begun to rekindle, shuttered factories and supply chains have not been able to keep up with rising demand, resulting in order backlogs and higher prices. (Source: Bureau of Economic Analysis)

USPS Struggling – Government Agency Overview

The United States Postal Service (USPS) remains an integral part of the economy and the country’s infrastructure even as the popularity of electronic payments and digital transactions have dramatically reduced the volume of mail processed by the USPS.

Of the more than 129 billion pieces of mail delivered in 2020, the most widely used service of the USPS is its first class mail service. As the volume of all mail has been dwindling, so has first class mail, falling from over 103 billion pieces in 2000 to just over 52 billion pieces in 2020, roughly a 50% drop in twenty years. There have been numerous rate increases over the years, with the most recent rate increase up to 55 cents for a 1 ounce letter in January 2019.

Source: USPS

 
Home prices rose at the fastest pace since 2005 in the past year

Higher Home Prices Create Affordability Challenges For Buyers – Housing Market

Home prices rose at the fastest pace since 2005, rising 12.6% nationwide over the past year. All 50 states saw a rise in home prices with Idaho, Utah, Arizona, New Hampshire and Connecticut experiencing the largest appreciations. Data gathered by the Federal Housing Finance Agency collects price changes on single family home values from all 50 states and over 400 cities. The most recent data available is for the quarter ending March 31, 2021. Analysts expect additional price changes for the quarter ending June 2021 when data is released.

The upward trajectory of home prices has made it less affordable for many to purchase, forcing some would-be home buyers to rent instead. Unfortunately, rising home values have resulted in rising rent costs nationwide, as lacking home supplies have spurred increasing demand for rentals.

Adding to the challenge of higher prices is the threat of rising mortgage rates, which minimizes the affordability of a loan payment each time rates tick higher. Policy changes by the Federal Reserve may eventually affect the direction of where mortgage rates are headed.

Source: Federal Housing Finance Agency

Job Openings Surpass 8 Million – Labor Market Update

A growing demand for workers by eager companies to fill positions nationwide has led to unfilled job openings exceeding 8 million as of the end of March, according to the most recent data available from the Department of Labor. Economists and analysts believe that generous unemployment benefits along with stimulus payments have discouraged many of the unemployed from returning to work. Lower paying job positions are the toughest to fill as unemployment payments equal if not exceed regular pay.

Various occupations in manufacturing, hospitality, transportation, and food services have seen the largest growth in openings since the pandemic began in March 2020. Some companies have announced higher wages and increased hourly pay in order to entice workers, yet still struggle to fill open positions.

Source: BLS