Stalled: 2H2021 Outlook-Let the Good Times Roll
Amongst the anticipated market weakness last week, the OHFG investment team released our 2H2021 Market Outlook titled “Let the Good Times Roll.” Further data, detail, additional videos, and podcasts on the material will be forthcoming. The initial abbreviated version can be found here.
Equity markets dropped last week amid a broad-based selloff in commodities and riskier assets. Bond volatility bled over to higher equity volatility as the Federal Reserve talked of tapering and rate hikes somewhat earlier than some expected. Much like June of 2013, the Federal Reserve began to signal that a slightly less-easy stance is coming. The S&P 500 fell 1.9%. Its year-to-date gain is still in double-digit territory. Bank financials were hit hardest, dropping 8.1% alongside a flattening of the yield curve. Material stocks, momentum investors favorite consensus call, fell more than 6% amid broad-based resource price declines. Lumber…timber! Copper…top!! Iron ore…melting down! Grains…plowed under!!
Technology and consumer discretionary held up at roughly flat on the week. These groups have been leading since around May 10-12 when the Treasury yield curve broke down. The real-time bond market, yield curves, and Treasury bond components of inflation were breakeven and real growth lead government data by weeks and months.
Almost everyone seems concerned about “inflation”, possibly because that is all the news channels are pumping out to their viewership. Recall what the concerns exactly one year ago were? Deflation! As we stated a week ago, pre-S&P500 weakness, our view is that the herd is too short on the dollar, too long on gold, too worried about inflation, not worried enough about a short term pick up in volatility (Treasury market volatility leads to equity volatility short term which has given the major buys this cycle), and way too pessimistic about real-growth in the economy for the second half of 2021, particularly 4th quarter 2021 and 1st quarter 2022.
Interesting Reading:
https://www.cnbc.com/2021/06/20/andrew-ross-sorkin-on-meme-stocks-bitcoin-spacs-antitrust-and-elon.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Mail (Example of irrelevant TV commentary)
https://seekingalpha.com/article/4435620-week-on-wall-street-bifurcated-market-back-with-twist?mail_subject=fear-greed-trader-the-week-on-wall-street-the-bifurcated-market-is-back-with-a-twist&utm_campaign=rta-author-article&utm_content=link-0&utm_medium=email&utm_source=seeking_alpha (Great detailed weekly summary)
https://www.theglobeandmail.com/business/article-restaurateurs-grapple-with-rising-food-costs-menu-prices-expected-to/
WEEK ENDING 6/18/2021 (CUMULATIVE TOTAL RETURNS)
Figure 1-QE/Tapering/Yield Curve 5s30s
Figure 2-Yield Curves 2s5s,10s30s
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