June 2021 Economic Update

Gross Domestic Product (GDP) rages higher as we hit mid-year. Add to that the emotional recovery of the collective U.S. populous as vaccinations roll out and stimulus rolls in, and we have everything from manufacturing to leisure and travel bursting with pent-up demand.

Some of this demand has caused manufacturers to triple or quadruple orders for materials which strain the supply chain and send commodity prices higher. Higher prices cause many to be concerned about inflation. Others, ourselves included, are less worried about runaway inflation and believe that much of the moves higher reflect transitory pressures. One small example; lumber prices have skyrocketed to meet housing demand; however, timber prices have remained relatively stable, indicating that the issue may be more with sawmill capacity. Since we are already beginning to see some early evidence of a slight slowdown in housing demand, we would define this as a shorter-term issue. That said, and to be clear, we believe this economy and growth have plenty of room to run.

The markets typically move in anticipation of future events and often, as was the case this earnings season, will sell off even as those positive events unfold. Keeping this in mind, we are starting to focus on the overseas markets where the pandemic recovery has not gone as well as here in the U.S. More on this below.

The following paragraphs suggest some forward-looking thoughts about the market and some practical things investors may want to consider as we move throughout the remainder of 2021.

• Potential Opportunities Overseas

• What’s up with the Federal Reserve 

• Volatility

Potential Opportunities Developing Overseas: 

We believe in looking forward and glancing in the review mirror. As such, we have largely avoided the overseas markets where other countries struggled and continue to work through the Pandemic even more so than here in the United States. As the U.S. continues its recovery ahead of many other parts of the world, the local markets have already been a beneficiary.  Now, as a broader, more global recovery emerges on the horizon we see increased opportunities overseas. We may be a bit early with this call, and as such, we are proceeding with caution and only where appropriate for less risk-averse investors.

Investing overseas is a complex issue and not for the faint of heart. Currency risk is just one issue. Political and regulatory risk can get even more complicated than it is here in the U.S. Not only is each economy different they also interact with one another in what we call the global economy. Add all of these to the standard risk parameters of investing in any business or asset class, and you can see where things can get a bit messy. Be sure to use an advisor with the right experience before jumping into the foreign markets, especially when considering investing in a broad-based index.

As a quick reminder, this is not individual investment advice; please reach out to us for questions on this front by CLICKING HERE or calling us at (312) 372-5000.

What is Up with the Federal Reserve:

Rarely a day passes when we hear no news or opinions on what the Federal Reserve (FOMC) is doing, plans to do, and how that may impact inflation. Treasury Secretary Yellen, a fine economist, and respected FOMC chairman for a time, even stepped out of her lane and back into the FOMC chairman’s space commenting on interest rates before quickly retracting her comments.

We believe the FOMC can be taken at their word when Chairman Powell assured us that they are “not even thinking about thinking about raising rates.” The FOMC could reduce some of the $120 billion per month of treasury bond purchases, which effectively pumps money into the financial system. However, they do not seem to be thinking much about that either. We believe it is essential to read, listen and observe what the FOMC is saying and doing rather than reading and listening to the commentary that often surrounds their statements and actions. As we see it, the throttle remains fully pushed forward for quite some time.

Volatility: 

When I wrote last month’s update, I warned that “We expect volatility to increase as we progress through the remainder of the year.” I assure you that I did not know that the following day the markets would start that volatility in earnest. I am not that good.

Now the question is, are we done? I think not.

We still expect more volatility; however, we have used this opportunity to “buy on the dip” on specific businesses that we believe will continue their long-term success. As we mention above, we are not as concerned about inflation or rates moving precipitously higher any time soon. As such, companies needing to borrow or refinance to fund their growth still have the ability to do so at favorable rates. When you combine that with the continued stimulus money being poured into the market, we hold fast in our confidence in a continued bull market.

Continued volatility means that your advisor should be working closely to understand your cash/liquidity needs over the coming several months, particularly as we head into the required minimum distribution season for retirement accounts. As always, we are happy to help you think this through in light of your specific situation, and you can schedule a call directly with me by CLICKING THIS LINK.

We continue to have one goal, to help you build a life you love supported by a portfolio that fits your specific needs.

Talk soon, John

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