This commentary was posted recently by fund managers, research firms and market newsletter writers and was edited by Barron’s.
THINK Economic and financial analysis
June 11: The coming week will be dominated by the Federal Reserve policy meeting [June 15-16]. No changes are expected, but we will have updated forecasts. It will be interesting to see if there are any signs of cracks in the Fed’s position that high inflation readings are ‘transient’.
With headline inflation at a 13-year high and core inflation at a near 30-year high, we believe they will be a little more balanced in their assessment, especially given the evidence that labor costs – work increases and that the series of inflation expectations are also underway. the rise.
Nonetheless, the disappointing jobs figures likely mean that the Fed continues to believe it is too early to discuss reducing quantitative easing. Some Fed officials are tentatively moving in this direction. Nonetheless, it will likely take a few more months of high activity, high inflation and rising employment costs for this to really happen.
We believe the Fed’s Jackson Hole conference at the end of August will kick off. This will be officially recognized at the Federal Open Market Committee in September. [meeting], with an announcement of a gradual reduction in QE at the December FOMC.
– James Knightley
Europe, surge in ESG fund flows
June 11: Which story to support? The history of reflation in developed markets? An increasingly green future? A fairytale financial universe populated by cryptocurrencies and memes stocks? A Gothic novel with higher taxes, inflation and state intervention?
Guidance research during the first week of June saw investors commit more than $ 5 billion to the two major multi-asset fund groups tracked by EPFR, increasing their exposure to the growing rally in the market. Europe, strengthen their inflation hedges and extend the long influx sequences of a number of fund groups with socially responsible, or SRI, or environmental, social and governance, or ESG mandates.
U.S. equity funds, however, saw their record inflows come to an end as attention shifted from strong U.S. growth to May’s headline inflation – 5%, the highest since 2008 – and higher taxes that currently seem inevitable. Muni bond funds saw their inflows peak in 17 weeks as they recorded their 22nd year of inflow to date. Inflation-protected Treasury securities funds recorded their 36th consecutive inflow, and US bank loan funds absorbed new money for the 23rd consecutive week.
Overall, bond funds tracked by EPFR recorded a collective inflow of $ 12.4 billion in the week ending June 9. Equity funds collected a net amount of $ 1.5 billion, a figure that would have been negative without the flows to SRI / ESG funds, with dividends in shares. funds registering their 13th influx in the past 15 weeks. But since the start of the year, net flows to all equity funds have already surpassed the current high of $ 358 billion in a full year set in 2013. Three out of four dollars incurred by equity investors up to present this year have gone to stock exchange traded funds. .
Hot series of housing
US economic outlook
June 10: House prices have risen, with the Case-Shiller and Federal Housing Finance Agency price indexes both gaining more than 13% year-on-year in March. These quick wins are not sustainable; we expect a return to more normal appreciation during the year. Limited supply keeps upward pressure on house prices, while input costs raise the price of new construction. However, mortgage underwriting standards remain cautious and demand will fall as households move into a post-pandemic lifestyle and work from home.
—Carl R. Tannenbaum, Ryan James Boyle, Vaibhav Tandon
Disturbing message from treasury bills
Carl M. Hennig
June 10: We commented on the bizarre 10-year US Treasury tape action last month, and it has gotten weirder since then. As of this writing, the 10-year is trading at a yield of 1.48% compared to its high yield of 1.76% at the end of March. Why? The reasons given are the Fed’s quantitative easing – the acquisition of $ 180 billion per month in treasury bills and mortgage-backed securities; US rates, although historically low, are attractive to global investors; U.S. companies are highly liquid after raising shipments of capital last year in response to the pandemic, minimizing the need for capital, and that cash flow continued as the economy improved, while the financial agents have little intention of improving the returns on this liquidity; and American consumers pay off their debts, they don’t borrow. If the economy is as robust as strategists indicate, rates should rise, not fall. Maybe, for the first time, bonds aren’t flagship stocks. Hopefully they don’t warn us, but the stock market strip is the real beacon.
—John F. Collopy
Bet on e-commerce
June 8: The pandemic has continued a key trend for Walmart, which is now the # 2 online retailer – and often cited by those who claim there is no longer a meaningful distinction between physical and online retailers. Despite the growth in Walmart’s online sales and a stimulus-induced rebound in the first quarter of 2021, Walmart’s profit margin before interest, taxes, depreciation and amortization declined, while that of Amazon.com declined. significantly improved.
Other physical retailers like
behaved in the same way as Walmart. Traditional players can be overwhelmed by legacy cost structures and too many physical locations, among other challenges. Born online retailers – not just Amazon, but companies like Chewy,
and Wayfair — may have lasting benefits for some time.
Too much complacency?
Weekly technical review
June 7: Markets have feasted since March and April last year, fueled by the concept of liquidity. A review of numerous charts suggests markets are approaching a crossroads as the Federal Reserve reports that its timing and persistently high inflation challenges President Jerome Powell’s definition of “transient”. The next risk reset will follow another upward push in June across the majority of markets, with some posting new highs and others just retesting a recent high. The trigger will come when investors realize that core inflation is holding well above the FOMC’s 2% target even as headline inflation declines.
Treasury yields will reverse higher in the second half of this year, with the 10-year Treasury yield reaching 1.95% and possibly 2.15%. Currencies should anticipate a less accommodating Fed by selling other currencies, which will allow the dollar to rebound. The conjecture about when the FOMC will start cutting Fed purchases and, more importantly, when the FOMC will be forced to raise the fed funds rate will be disruptive.
Complacency is the dominant feature of financial markets, and the May jobs report has only reinforced it. By the time the upcoming reset draws to a close, complacency will have been replaced by worry.
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