📝 Market Commentary for 2021-Q2
This quarter, we look at a return to normalcy, inflation concerns, and shortages everywhere except for the money supply.
We conduct extensive investment research and comment on the most significant market events in the past quarter.
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The U.S. Returns to Some Sense of Normalcy.
(Conscious Capital Advisors)
Source: BLS, EconBrowser
The summer of 2021 marks the quarter where things begin to return to a sense of normalcy. After a global pandemic dislocated the economy in 2020, people are now back on the streets thanks to vaccines, businesses are now reopening, and the consumer demand for services has rebounded to pre-pandemic levels. The U.S. GDP has rebounded strongly, at a 6.4% annual rate for the 2nd Quarter of 2021.
Inflation Concerns Weigh Heavily on Investors’ Minds.
(Conscious Capital Advisors)
Inflation was undoubted the most talked about economic subject for the quarter. To stave off economic disaster from the coronavirus last year, the U.S. government enacted emergency monetary and fiscal measures to support Americans during this challenging time, which have increased the M1 money supply by about 33%. As measured by the CPI, pent-up consumer demand has caused YoY prices to move up 5.0% in May and 5.4% in June, the two highest year-over-year growth rates since 2008. So, as people begin to take much-desired vacations and start spending again with generally more money in their wallets, a persistent question has weighted on many investors' minds. If this powerful recovery has been fueled by massive stimulus, would the inflation that we are experiencing right now cause the Fed to raise rates and put a damper on financial markets? It is likely possible that higher volatility in financial markets is possible as surprises in inflation data could trigger market turbulence.
Shortages are Everywhere Except for Money Supply.
(Conscious Capital Advisors)
Much of the inflation has been driven by a reopening economy that has boosted demand from government financial support and a much larger money supply; however, some price increases can be explained by examining developments on the supply side. Although the risk of the coronavirus is lower now than it was a year ago, global supply chains have still been impacted severely by the pandemic, as the coronavirus and geopolitical tensions have shifted the relationship between the United States and China. As a result, shortages exist in multiple areas, namely semiconductor chips and labor markets. Chips are one key area driving inflation, as increasing car prices are a major contributor to CPI numbers.
Written by Joseph Lu, CFA®
Joseph has over a decade of experience as an investment professional, primarily in quantitative analysis and portfolio management roles. He is the founder and managing director of Conscious Capital Advisors and a CFA® Charterholder. The CFA charter is a globally respected, graduate-level investment credential by the CFA Institute, a global association of more than 90,000 investment professionals working in over 133 countries.
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