Market Update Q2 2021

COVID, a year later …

Inflation, is it here to stay?

International markets ahead of the US.

In the 2nd Quarter of 2020, the COVID-19 pandemic caused a global financial bust. The Federal Reserve (FED) and Central Banks around the world took drastic measures to lower interest rates to historical levels, to simulate the purchasing power of industry and the consumer. Investors scrambled to make sense of the impact to the markets, and in the process fled stocks for the safety of more stable investments like bonds and cash. Here we are a year later, is the recovery over? Are we in the makings of a new global economic expansion?  Gross Domestic Product (GDP) is expected to have its 4th straight quarter of expanded growth. Stock market indexes are bumping up to record highs. 

What does this mean for you and me? It looks like “inflation”. The consequence from the halt in global manufacturing last year colliding with the ramp up of massive government stimulus (low interest rates and money from our government to spend), has created inflationary pressure that reflects in the rise in prices for the goods we use and consume. Construction materials, energy, food, housing, and other product prices have elevated substantially over the year. The effect is like an additional tax every time we purchase a good or service. The markets have responded to this prospect with downward pressure, concerned that corporate earnings will protract as industrial and consumer spending slow down due to price increases. There is also concern that interest rates will rise to the point that stifles economic growth. We are hopeful that current inflationary pressures are temporary in nature due to COVID restrictions across the country ending, higher employment, manufacturing output increasing, and bottlenecks in the supply chain clearing to meet consumer demand. These factors would have a calming effect on the markets that lead to a pullback in inflationary pressure. The fact remains to be seen if inflation will drop back towards the FED’s projected goal of 2%. If not, we believe we will continue to see volatility in the stock and bond markets. There would also be a more measured approach by the FED to end their securities purchase program and raise interest rates sooner than later to combat the effects of inflation. This is a delicate balancing act that could lead to continued global growth or a fall from the heights with a recession. Who wants to be on the Federal Reserve Board?

International Markets have rebounded off last year’s lows ahead of US markets. This was despite continued lockdowns and a slow rollout of vaccination programs. Stock performance of European companies has been robust. We believe this strong growth will continue as the Eurozone prepares to disseminate its most expansive stimulus plan on record and extend its bond purchase program. The effects of these maneuvers should aid markets across the pond in continued growth that outperforms domestic markets.

We continue to take the factors noted into consideration as we allocate funds into the markets. We remain cautiously optimistic in the outcomes of policies put in place to drive economies and markets around the world forward. A misstep in economic policy could have recessionary consequences. It is important for us to discuss your concerns and invest accordingly to weather the conditions the market presents. If you have questions regarding your portfolio or your financial circumstances have changed, please do not hesitate to contact me. 

Abundance to you,

Scott Miller

Partner