July is in the books!
For being the “dog days” of summer, we had a lot to talk about.
Richard Branson, the billionaire founder of Virgin Group, led the first privately-funded spaceflight on July 12th. Amazon-founder Jeff Bezos blasted off a few days later on his Blue Origin rocket. You have to marvel at how compressed history can feel in the 21st century: Branson was born in 1950, just two years after Orville Wright died! Hopefully, the advances we make today can benefit us all tomorrow.
The Tokyo Olympics kicked off July 23rd. Seems like no Olympic games can be hosted without some handwringing, and this year is no exception. Still, it’s great to see the athletes who were supposed to compete last year getting their chance to shine.
On the economic front, the National Bureau of Economic Research declared 2020’s recession that started in February over by April – the shortest recession in history!
Markets continue to grind higher, supported by mostly encouraging economic data. However, persistent inflation remains a concern that bears watching.
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The stock market continued its run of positive performance in July, with all three major indexes finishing the month higher.
On a sector basis, Healthcare, Real Estate, and Utilities stocks led the pack in the July. Energy stocks, the year-to-date sector leader, took a beating, losing -8.26%. Real estate stocks continued their strong 2021 campaign, adding another 4.17% to an already strong year. Financials slipped, dropping -0.44%.
Meanwhile, consumer-facing stocks made up ground in July. Consumer discretionary stocks - companies like Tesla, Nike, and Target - posted a modest gain. Consumer staples - companies like Procter & Gamble, Colgate-Palmolive, and Coca-Cola - outperformed. Utilities caught a bid, gaining 4.33%.
Bonds continue to struggle in 2021. The rising inflation rate has increased pressure on policymakers to consider raising rates from historically low levels. As a reminder, when interest rates rise, a bond’s return tends to fall as investors seek the more attractive yield. Corporate bonds turned positive for the year after a strong July, as measured by the S&P 500 Bond Index.
Consumer Spending Remains Robust
Consumer spending represents two-thirds of the US GDP, which makes it a good gauge of consumer health. Personal consumption increased by 1%, from $15.6 trillion to $15.7 trillion, a positive sign for the health of the US economy.
Inflation Rises Again
Inflation remains the watchword on Wall Street and beyond. As a reminder, inflation is the rise in the general price level of goods and services. Some inflation is good because it means an economy is expanding. A ‘good’ inflation rate is 2% per year, according to the Federal Reserve.
The current inflation rate is 5.3%, the highest it’s been since July 2008.
Rising inflation will increase the pressure on the Federal Reserve to raise interest rates. As of now, Fed Chair Jerome Powell stated his intention to leave interest rates at their current level of 0.10%. He also hinted at tapering the Fed’s bond purchases, which could introduce more volatility throughout the market in the coming months.
Stocks have continued their torrid pace in 2021, supported by historically low interest rates and robust consumer spending. Some company’s have suffered from supply chain bottlenecks, which have impacted their earnings and likely contributed to higher overall inflation. We’re on the lookout for signs those supply chain issues may have corrected themselves.
Historically, September and October are some of the most volatile months in the market. Volatility tends to generate a lot of sensational stories in the financial media. Don’t worry about day-to-day moves: July is a perfect example of how quickly markets can get back on course!
If you have questions about your portfolio, please schedule some time with our office!
Einstein was right - again!
Over a century ago, Albert Einstein predicted that the gravitational pull of black holes were so strong that they should bend light right around them.
Black holes don't emit light, they trap it; and ordinarily, you can't see anything behind a black hole.
But it seems Einstein's theory was right. For the first time, astronomers have caught a glimpse of light being reflected — or "echoing" — from behind a supermassive black hole, 800 million light years away from Earth.
Source: ABC News Australia
Thought for the Month
Dow Jones Industrial Average: The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities.
Dow Jones U.S. Real Estate Total Return Index: The index is designed to track the performance of real estate investment trusts (REIT) and other companies that invest directly or indirectly in real estate through development, management, or ownership, including property agencies.
NASDAQ Composite: The NASDAQ Composite is a market-cap weighted index of all issues listed on the Nasdaq stock exchange. It is heavily weighted towards the technology sector.
S&P 500 Bond Index: The S&P 500® Bond Index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap U.S. equities. Market value-weighted, the index seeks to measure the performance of U.S. corporate debt issued by constituents in the iconic S&P 500.
S&P 500 Consumer Discretionary: The S&P 500® Consumer Discretionary comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer discretionary sector.
S&P 500 Consumer Staples: The S&P 500® Consumer Staples comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer staples sector.
S&P 500 Energy: The S&P 500® Energy comprises those companies included in the S&P 500 that are classified as members of the GICS® energy sector.
S&P 500 Financials: The S&P 500® Financials comprises those companies included in the S&P 500 that are classified as members of the GICS® financials sector.
S&P 500 Index: The S&P 500® index is a market-cap weighted index of the largest 500 companies headquartered in the United States. The index covers approximately 80% of available market capitalization.
S&P 500 Utilities: The S&P 500® Utilities comprises those companies included in the S&P 500 that are classified as members of the GICS® utilities sector.
S&P U.S. Aggregate Bond Index: The S&P U.S. Aggregate Bond Index is designed to measure the performance of publicly issued U.S. dollar denominated investment-grade debt. The index is part of the S&P AggregateTM Bond Index family and includes U.S. treasuries, quasi-governments, corporates, taxable municipal bonds, foreign agency, supranational, federal agency, and non-U.S. debentures, covered bonds, and residential mortgage pass-throughs.
S&P U.S. Treasury Bond Index: The S&P U.S. Treasury Bond Index is a broad, comprehensive, market-value weighted index that seeks to measure the performance of the U.S. Treasury Bond market.
Consumer Prices - CPI: Consumer prices (CPI) are a measure of prices paid by consumers for a market basket of consumer goods and services. The yearly (or monthly) growth rates represent the inflation rate.
PCE (headline and core): PCE deflators (or personal consumption expenditure deflators) track overall price changes for goods and services purchased by consumers. Deflators are calculated by dividing the appropriate nominal series by the corresponding real series and multiplying by 100.
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