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Weekly Market Update for June 11, 2021

by Jim Ulland

The market sent out surprising signals on inflation this week. It sounded like Bobby McFerrin and his song “Don’t Worry Be Happy.” The Fed has been arguing that the inflation spike is temporary. They contend that once September comes, schools will reopen for in-person learning, the bonus unemployment payments will end, and Covid concerns will diminish allowing people to return to work. The Fed also thinks that once supply chains normalize, product price increases will be tempered. That said, prices of airline tickets, apparel, rental cars, used cars, oil, gasoline, food, and many commodities have risen. Many do not believe the Fed after experiencing this flood of price increases in just about everything. Yet, on Thursday when the May CPI figures came out and showed inflation at the highest level since 2008, the market went up and government bond yields went down. That was the opposite of what was expected.

Consumer expectations about inflation have been surprisingly modest. The UMich consumer sentiment report said consumers expected only a 2.8% average inflation level over the next five years. Let us hope the Fed is right and inflation will stay in check. Pent up spending and too much stimulus will test the Fed’s view. Apparently, a tentative agreement has been reached on an infrastructure spending bill, not the type of medicine the economy needs when in a hot recovery. The World Bank forecasts that 2021 will produce the strongest global growth in 80 years, hardly the environment for low inflation.

A day after the CPI report was released, stocks were still going up and bond prices down. This is favorable for our fixed income strategy Intelligent Fixed Income, but we are ready and able to reposition quickly should the Fed have misjudged the situation. This week’s unemployment filings, which were at another post-pandemic low, raised additional questions about the Fed’s inflation view. Job openings rose by 998,000 to a record of over nine million.

The market focused on the strength of the economy rather than the fear of inflation. We expect the strength of the economy will drive corporate revenues and profits higher allowing stocks to grind upwards as Q2 earnings and revenue announcements are made in July. Interest rates continue to stay surprisingly flat, pushing investment dollars into preferred and common stock.

The Nasdaq closed the week +1.85% higher. The SP 500 was up +0.41%. Monday the SP 500 was down -0.08%, Tuesday +0.02%, Wednesday -0.18%, Thursday +0.47%, and Friday +0.19%.

Next week there will be a lot of discussion of the infrastructure bill as well as how the G-7 minimum corporate tax would work. May retail sales and housing starts will make news. Lumber prices have come down some, but they are still way above January 1st levels and are likely to slow housing starts.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategy vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision. See www.ullandinvestment.com for important strategy disclosures.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investing involves risk; principal loss is possible. Investors should consider the investment objectives, risk, charges, and expenses of the strategy carefully before investing. This and other important information can be obtained by contacting Ulland Investment Advisors.

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Ulland Investment Advisors

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