Economic Monitor – Weekly Commentary
by Scott J. Brown, Ph.D.

Peak Inflation

June 11, 2021

Oh, wow, déjà vu. Once again, the monthly increase in the CPI exceeded expectations. The Consumer Price Index has now posted its largest two-month increase, and its largest year-over-year increase, since mid-2008. So, naturally, bond yields are… lower???

The C

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Investment Strategy
by Larry Adam
Chief Investment Officer, Private Client Group

Weekly Headings

June 11, 2021

Key Takeaways

  • Labor Market Improvements Should Bolster Spending
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    Weekly Market Snapshot

    June 18, 2021

    Market Commentary
    by Scott J. Brown, Ph.D., Chief Economist

    The Federal Open Market Committee (FOMC) left short-term interest rates unchanged and did not alter the monthly pace of asset purchases. Officials revised their expectations for 2021 growth and inflation higher, but the increase in inflation was still expected to be transitory (officials generally expect inflation to fall back to just above 2% in 2022). Many of the dots in the dot plot moved forward (13 of 18 Fed officials anticipate an increase in short-term interest rates by the end of 2023, vs. 7 of 18 in March) – not a big shift, and not surprising given the economic outlook, but enough to spook stock market investors.

    Retail sales fell 1.3% in May, down 0.7% ex-autos, but remained about 12% above the pre-pandemic trend. Industrial production rose 0.8% in May, led by a 6.7% rebound in motor vehicle production (which fell 5.7% in April). Single-family building permits fell 1.6% in May. Homebuilders cited supply constraints and affordability issues. The Producer Price Index rose 0.8% in May (+6.6% y/y) as pipeline pressures remained elevated. Import prices rose 1.1% (+11.3% y/y), reflecting pressures in industrial supplies and materials, but inflation in prices of finished goods remained mild.

    Next week, the third estimate of 1Q21 GDP growth should not be market-moving. May figures on durable goods orders, personal income and spending, merchandise trade, and inventories will help to piece together GDP estimates for 2Q21. The PCE Price Index (included in the personal income and spending report) should echo the large increase seen in the Consumer Price Index.


    Indices

      Last Last Week YTD return %
    DJIA 33823.45 34466.24 10.51%
    NASDAQ 14161.35 14020.33 9.88%
    S&P 500 4221.86 4239.18 12.40%
    MSCI EAFE 2350.34 2365.09 9.44%
    Russell 2000 2287.46 2311.41 15.83%

    Consumer Money Rates

      Last 1 year ago
    Prime Rate 3.25 3.25
    Fed Funds 0.09 0.08
    30-year mortgage 3.25 2.99

    Currencies

      Last 1 year ago
    Dollars per British Pound 1.3855 1.242
    Dollars per Euro 1.1884 1.121
    Japanese Yen per Dollar 131.04 119.87
    Canadian Dollars per Dollar 1.238 1.360
    Mexican Peso per Dollar 20.521 22.753

    Commodities

      Last 1 year ago
    Crude Oil 70.32 38.84
    Gold 1778.60 1731.10

    Bond Rates

      Last 1 month ago
    2-year treasury 0.23 0.15
    10-year treasury 1.51 1.61
    10-year municipal (TEY) 1.47 1.52

    Treasury Yield Curve – 06/18/2021

    Chart

    As of close of business 06/17/2021


    S&P Sector Performance (YTD) – 06/18/2021


    Chart

    As of close of business 06/17/2021


    Economic Calendar

    June 22  —  Existing Home Sales (May)
    June 23  —  New Home Sales (May)
    June 24  —  Jobless Claims (week ending June 19)
     —  Durable Goods Orders (May)
     —  Real GDP (1Q21, 3rd estimate)
     —  Advance Economic Indicators (May)
    June 25  —  Personal Income and Spending (May)
     —  UM Consumer Sentiment (June)

     

    All expressions of opinion reflect the judgment of the Research Department of Raymond James & Associates, Inc. and are subject to change. There is no assurance any of the forecasts mentioned will occur or that any trends mentioned will continue in the future. Investing involves risks including the possible loss of capital. Past performance is not a guarantee of future results. International investing is subject to additional risks such as currency fluctuations, different financial accounting standards by country, and possible political and economic risks, which may be greater in emerging markets. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, and state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Municipal bonds may be subject to capital gains taxes if sold or redeemed at a profit. Taxable Equivalent Yield (TEY) assumes a 35% tax rate.

    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 index is an unmanaged index of small cap securities which generally involve greater risks. An investment cannot be made directly in these indexes. The performance noted does not include fees or charges, which would reduce an investor's returns. U.S. government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

    Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments. Gross Domestic Product (GDP) is the annual total market value of all final goods and services produced domestically by the U.S. The federal funds rate (“Fed Funds”) is the interest rate at which banks and credit unions lend reserve balances to other depository institutions overnight. The prime rate is the underlying index for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. Material prepared by Raymond James for use by financial advisors. Data source: Bloomberg, as of close of business June 17, 2021.

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