The Bull Market Continues

While global equities were mixed last week, the Technology heavy NASDAQ (+0.4%) and the S&P500 (+0.4%) rose to new all-time highs.  Japan/NIKKEI (-2.9%) and France/CAC40 (-0.4%) were global laggards.

Overall, for the week, growth stocks outperformed value as the 10-year Treasury fell 6 bps, with the FAANGs returning 1.73% compared to -1.12% for the Russell 2000 small caps. Growth leadership is generally tied to long term interest rates, with tech following bonds and value moving opposite them. Markets in China had their worst week since Feb as the crackdown on large tech firms took its toll, and the PBOC decision to ease monetary policy hinted that growth may be weaker than expected.  Emerging markets and other markets in Asia underperformed.

Domestically, consumer discretionary and technology led the week although Friday saw a dramatic increase in the “reflation” themes that lagged all of second quarter.   Financials, commodities and energy rebounding on Fri as coincident with strategist calls for now even lower long term interest rates in the second half of 2021, the long end of the interest rate curve as measured by 10-year treasury rose over 10 basis points Friday, leading to a comeback in metals, mining, financials and industrial stocks.

Markets have been “selling the news” of economic reopening.  Now, many are in line with our early thoughts believing that the bulk of the inflation story is indeed transitory (10-year TIPS spreads are down about 30 bps since mid-May, accounting for roughly half the move in yields).

While mindful of normal summer seasonally in both the economy and stock markets making for a 5-6.5% pullback possible at any time, we expect the S&P 500 will continue to perform well. Our model currently targets an end of 2021 price point of around 4600, with higher targets feasible if volatility continues to trend much lower in 4q2021 and 1q2022.  Risks to our outlook lie primarily in another upturn in virus counts this summer and in 1q22 that would cause an economic slowdown just as supply chain inventories are being rebuilt.

Fridays 7/9/21 Podcast:

Interesting Reading:

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