Investment NewsRead news from your Tulsa Wealth Advisors and other Raymond James newsletters.
Tulsa Wealth Advisors Current Newsletter
JUNE MARKET REVIEW
Inflation was top of mind for investors throughout June as the Core Consumer Price Index (CPI) notched its highest increase since 1992. “While it appears the inflation genie has peeked out of the bottle with CPI at 3.8%, the Fed has been granted its wish, convincing the markets of a strong economy and temporary inflation that should trend back toward the 2% long-term goal by next year,” says Larry Adam, chief investment officer.
Despite what are expected to be transitory inflation pressures, the growth outlook for this year remains strong. Recent data suggests a quick recovery as the economy reopens, but the pace may not be quite as brisk over the second half of the year, says Chief Economist Scott Brown. Rapid growth has strained supply chains and there are enormous difficulties in matching millions of unemployed workers to available jobs, although Brown expects those issues to resolve over time.
Bipartisan negotiations continue in Washington, D.C., around tax changes, national spending and the infrastructure bill. With the path forward highly uncertain, domestic equity markets may experience increased volatility over the later part of the summer, says Washington Policy Analyst Ed Mills.
On stocks and bonds
Short to short-intermediate interest rates are slightly up for the month, while longer duration Treasury yields are down. On a relative basis, all sectors continue to experience very tight spreads. The narrowed yield curve has stoked some concern about the health of the recovery. The economic recovery is on solid footing, believes Joey Madere, senior portfolio analyst of Equity Portfolio & Technical Strategy. Low rates and lower credit spreads seem supportive of equity markets at this point in time.
Attention turned to future actions by the Federal Open Market Committee, specifically whether the committee members might consider an increase to the fed funds rate sooner than expected. Keeping it in context, “sooner” is likely 1.5 years away, notes Doug Drabik, managing director for fixed income research.
The Fed continues to be accommodative and is still purchasing $120 billion in Treasury and mortgage-related products monthly.
The G7 meeting saw commitments toward climate change, a reduction in the use of coal and the earmarking of 1 billion vaccines for developing countries. European fiscal policy hasn’t changed much despite improved economic growth prospects and inflation expectations. Some COVID-19-related travel restrictions remain in place, slightly hindering regional summer holidays, although U.K. and European markets continued their upward trend, adding to year-to-date gains, explained European Strategist Chris Bailey. In Asia, regional equity market performance remains lackluster, and China’s financial decision-makers appear concerned with limiting any inflationary threats.
Also of note is Iran’s presidential election and its potential impact on oil supply and pricing. Oil prices ended June near pandemic-era highs. Iran President-elect Ebrahim Raisi’s nationalist tendencies may complicate ongoing nuclear negotiations and limit the prospect of lifting U.S. sanctions imposed on the country’s oil exports. A snag in negotiations means the export of 1.5 to 2 million barrels per day could be at stake, representing just under 2% of global supply, according to Energy Analyst Pavel Molchanov.
The bottom line
The economic recovery remains robust, with the equity market continuing to reach new heights. Savvy stock investors should consider using temporary pullbacks in certain sectors as an opportunity to strategically add to their portfolios. There is also a continuation of money being added to the economy and we should expect a continuation of the expected consequences: Stocks continue to go up and yields continue to fall.
Click the links below to get the latest Economic & Market commentary:
Additional Raymond James Newsletters:
Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of Raymond James and are subject to change. Past performance is not an indication of future results and there is no assurance that any of the forecasts mentioned will occur. The process of rebalancing may result in tax consequences. Economic and market conditions are subject to change. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 is an unmanaged index of small cap securities. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. The Purchasing Managers Index (PMI) is a measure of the prevailing direction of economic trends in manufacturing. An investment cannot be made in these indexes. Dividends are not guaranteed and will fluctuate.
International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets. Small and mid-cap securities generally involve greater risks. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. The performance noted does not include fees or charges, which would reduce an investor’s returns. Asset allocation and diversification do not guarantee a profit nor protect against a loss. Debt securities are subject to credit risk. A credit rating of a security is not a recommendation to buy, sell or hold securities and may be subject to review, revisions, suspension, reduction or withdrawal at any time by the assigning rating agency. A downgrade in an issuer’s credit rating or other adverse news about an issuer can reduce the market value of that issuer’s securities. When interest rates rise, the market value of these bonds will decline, and vice versa. U.S. Treasury securities are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. The yield curve is a graphic depiction of the relationship between the yield on bonds of the same credit quality but different maturities. Chris Bailey is with Raymond James Investment Services, an affiliate of Raymond James & Associates, Inc. and Raymond James Financial Services, Inc. Material prepared by Raymond James for use by its advisors.
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC.
© 2020 Raymond James Financial Services, Inc., member FINRA/SIPC. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc.
Raymond James Financial Services does not accept orders and/or instructions regarding your account by email, voice mail, fax or any alternate method. Transactional details do not supersede normal trade confirmations or statements. Email sent through the internet is not secure or confidential. Raymond James Financial Services reserves the right to monitor all email. Any information provided in this email has been prepared from sources believed to be reliable, but is not guaranteed by Raymond James Financial Services and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for informational purposes only and does not constitute a recommendation.