2nd Quarter 2021

I hope all is well with you and your families and everyone is enjoying their summer. We have all been looking forward to spending time and share new memories with our loved ones.

Inflation was top of mind for investors throughout the past quarter as the Core Consumer Price Index (CPI) notched its highest increase since 1992. “While it appears the inflation genie has peeked out of the bottle with CPI at 3.8%, the Fed has been granted its wish, convincing the markets of a strong economy and temporary inflation that should trend back toward the 2% long-term goal by next year,” says Larry Adam, chief investment officer.

Despite what are expected to be transitory inflation pressures, the growth outlook for this year remains strong. Recent data suggests a quick recovery as the economy reopens, but the pace may not be quite as brisk over the second half of the year, says Chief Economist Scott Brown. Rapid growth has strained supply chains and there are enormous difficulties in matching millions of unemployed workers to available jobs, although Brown expects those issues to resolve over time.

Bipartisan negotiations continue in Washington, D.C., around tax changes, national spending and the infrastructure bill. With the path forward highly uncertain, domestic equity markets may experience increased volatility over the later part of the summer, says Washington Policy Analyst Ed Mills.

On stocks and bonds

Short to short-intermediate interest rates are flat for the quarter, while longer duration Treasury yields are down. On a relative basis, all sectors continue to experience very tight spreads. The narrowed yield curve has stoked some concern about the health of the recovery. The economic recovery is on solid footing, believes Joey Madere, senior portfolio analyst of Equity Portfolio & Technical Strategy. Low rates and lower credit spreads seem supportive of equity markets at this point in time.

Attention turned to future actions by the Federal Open Market Committee, specifically whether the committee members might consider an increase to the fed funds rate sooner than expected. Keeping it in context, “sooner” is likely 1.5 years away, notes Doug Drabik, managing director for fixed income research.

The Fed continues to be accommodative and is still purchasing $120 billion in Treasury and mortgage-related products monthly.

The bottom line

The economic recovery remains robust, with the equity market continuing to reach new heights. Savvy stock investors should consider using temporary pullbacks in certain sectors as an opportunity to strategically add to their portfolios. There is also a continuation of money being added to the economy and we should expect a continuation of the expected consequences: Stocks continue to go up as yields continue to fall. Don’t fight the fed. Growing balance sheet provides stock market support. Don’t fight the trend. Unsustainably strong trend may constrain near-term returns. Beware of the crowd at extremes. Exuberance may fade this summer. If short to short-intermediate interest rates creep up again expect some equity market volatility in the coming quarters.

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Regards,

Elliot Weissmark, CFP®, CPFA
Senior Vice President, Investments

Any opinion are those of Elliot Weissmark, CFP®, CPFA and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. Prior to making an investment decision, please consult with your financial advisor about your individual situation. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise.