Watch the CPK Market Action Report: August 2021
Pronounced volatility in the equity markets has been repeated ad nauseam over the last several weeks. Should investors expect to see an extended period of this up and down market movement or are there smoother roads ahead as we look further into the second half of the year?
Watch the full Market Action Report now:
August 2021
INTRO TAG
Pronounced volatility in the equity markets has been repeated ad nauseam over the last several weeks. Should investors expect to see an extended period of this up and down market movement or are there smoother roads ahead as we look further into the second half of the year?
That action starts, NOW!
INDEX PERFORMANCE RECAP
Equity markets have presented an uncomfortable ride for many investors over the last several weeks. Just this last month, we saw all of the major indices have four swift declines with equally matched rebounds with the worst of them being mid-month with a 3% decline. In spite of all that action, the Dow Jones Industrial was able to close up 1.24% and the Nasdaq was neck and neck, up 1.23%. The S&P 500 was the winner for the month closing up 2.2%.
EQUITY UPDATE
Stocks continue to defy the “Sell in May and Go Away” anthem this year as they keep finding a way to eek out gains despite all the volatility. The weekly jobs reports continue to support the strength in the reopening of our economy. With the Fed on hold for now and no signs of a negative economic impact from the Delta variant, the equity markets will most likely continue their march higher.
BOND UPDATE
While equity investors are encouraged by the lower yields in bonds, it seems bond investors are proceeding with a bit more caution. Based on the recent auction results, demand for Treasuries is at least partially sensitive to the yield. At the current levels, the low yields appear to be reducing the demand which is ultimately a price negative and a yield positive. The 10yr Treasury closed down at 1.23% to end the month.
COMMODITY UPDATE
Commodities weren’t immune to all of the volatility in equity markets this month.
Oil started the month with a sharp decline of 10% over concerns of the Delta variant. However, the black gold found support mid-month on some near-term fundamental factors; specifically, the declining supply levels at the U.S. oil hub in Cushing, OK. Although this could be cause for new highs this year, it is more likely we will continue to see resistance at the mid to upper 70’s level. Crude closed at $73.81, just off it’s high for the year.
Thanks to month-end weakness in the dollar and a general tailwind behind risk assets, copper was able to jump higher for the month, closing up 4.67%. Copper should be able to remain resilient as construction activity and green energy demand are unlikely to be negatively impacted from any threats of the Delta variant.
After a great start to the month, gold fell with most everything else in the middle of the month but found the ability to rally in the last few days to close up just over 2%. As long as inflation remains elevated and the Fed is on hold, gold could find a way to retest the $1900 level in the weeks ahead. Gold could also be a benefactor from a continued decline in interest rates
CURRENCY UPDATE
After experiencing a nice bounce higher this last month, the US Dollar fell to a one month low thanks to underwhelming economic data closing at $92.09. A lot of this movement was just a natural reaction to the Fed. The greenback had been trading near the upper end of the current range on expectations of a more hawkish Fed and that did not happen. With the Fed appearing to stand pat, it is unlikely we will see much of a rally in the dollar in the near future.
ECONOMIC UPDATE
Initial claims for unemployment suggest the downward trend in new jobless claims is beginning to level off indicating the recovery in the labor market may be losing momentum. The current level of employment will not meet the Fed’s criteria of “Substantial further progress” required to begin tapering QE sooner than later. While all of this may be a short term positive for stocks, investors will definitely want to see further improvement in the labor force for the second half of this year as the economic recovery is still one of the major pillars supporting this bull market. Any deterioration in the economic outlook will become a major headwind for stocks.
THE WRAP
Last month I told you that the next major catalyst I was focused on that could move the markets was going to be the Feds language leading up to and at the actual economic symposium in Jackson Hole. Unfortunately, you can see from this report that it is unlikely the Fed will be taking much if any action as to tapering QE or adjusting rates at that meeting. It appears the level of employment is going to have to improve quite a bit more before we should expect them to make any moves. As such, I suspect this will mean we will see a continued abundance of liquidity in the economy supporting the current levels of elevated inflation in the economy. This would also mean that we should expect to see interest rates remain low for the time being. This should bode well for equities in the short term. However, I am doubtful this will have any positive impact toward reducing the recent level of volatility we have been experiencing.
CPK FOCUS
For the month of August, our models continue to hold a 30% cash allocation. Our broad focus remains on Domestic Equities and Commodities.
For Domestic Equities, our attention is on Small Cap Growth, Mid Cap Growth and Small Cap Blend with an emphasis on the Consumer Cyclicals, Technology, Industrials, Financials and Basic Materials.
As for Commodities, our focus remains on Energy and Industrial Metals.
CPK DISCLAIMER
As a reminder, my current allocation is not a recommendation. Regardless of what happens next, investors like you need to have a simple and yet solid financial plan that reduces RISK, COSTS and TAXES while securing the necessary income you need to maintain your lifestyle throughout retirement.
If you don’t have a plan OR you’re not comfortable with the plan you have, call me today to get pointed in the right direction.
I’m Chad Kunc and that puts a wrap on the August 2021 Market Action Report. Thanks for joining me. It’s time for me to get back to the markets.
And that action starts, NOW!