Watch the CPK Market Action Report: July 2021
Tech rallies! That was the theme for the month of June as the S&P 500 and Nasdaq Composite closed out at new highs. Is the rally for real or will wages and the jobs reports over the next few months challenge the temporary inflation and a dovish Fed leading to an increased chance of a correction in equities?
Watch the full Market Action Report now:
July 2021
INTRO TAG
Tech rallies! That was the theme for the month of June as the S&P 500 and Nasdaq Composite closed out at new highs. Is the rally for real or will wages and the jobs reports over the next few months challenge the temporary inflation and a dovish Fed leading to an increased chance of a correction in equities?
That action starts, NOW!
INDEX PERFORMANCE RECAP
Stocks were mixed for the month of June with the Dow Jones Industrial closing down -.24% while the S&P 500 was up 1.92%. The Nasdaq stole the show though by posting an impressive gain of 4.88%. This was a nice rebound for the composite after posting a loss of just over 2% the previous month.
EQUITY UPDATE
Early signs indicate the “Sell in May and go away” theory may not be in favor this year. With stocks being a bit range bound for the last couple of months, it looks like we could be working our way into higher highs through the traditionally slower summer months. If the jobs report on July 2nd hits a “just right” number of 300k-1M, investors should expect to see this rally in equities continue. If the number is greater than 1M, expect a potentially sharp rise in the 10-year yield and sharp selloff in stocks. A report of <300k would probably provide a short-lived small decline in equities.
BOND UPDATE
Equity investors were calmed by the nice pullback of just over 11% in the 10yr treasury, closing out the month at 1.44%. This was caused by a pullback in global bond yields as investors looked to take a mild flight to safety as concerns rise over the spread of the Delta variant in Europe. The fear is not so much in the case count, rather the government’s response that could bring a pause or reverse of the economic reopening in Europe.
COMMODITY UPDATE
The commodity space was mixed in June.
As I suggested in last month’s report, oil was able to build on its rally from May breaking out above $70 posting a 9.11% return and closing out at $73.52. If OPEC announces plans to raise output by more than 500k barrels per day during their upcoming meeting, investors will see a pause in the energy rally. However, it should not be a bearish gamechanger.
Copper continued its sell-off from May during the first half of June before finding some support later in the month just above the $4 level, closing at $4.295. Copper will be a key indicator to watch in the second half of the year as prices should respond negatively to concerns about the Fed choking off growth and likely before we see a big response from stocks.
Gold fell 7.50% to 1768.80 in June giving back all of its gains from May. If the July 2nd jobs report comes in too hot, gold will continue its downward slide.
CURRENCY UPDATE
Thanks to quarter end demand, a safe haven interest from the increasing spread of the new Covid Delta variant around the world and mostly better than expected U.S. economic data, the US dollar experienced a nice rebound from the June sell-off to close at a 2 ½ month high of $92.36. I don’t expect to see this turn into a strong rally for the green back in the near future so as long as the Fed remains the most dovish of the major central banks.
ECONOMIC UPDATE
The May ADP jobs and the Weekly Jobless Claims early in the month were both stronger than expected. This implies that more people returned to work in May reducing fears of a structural labor market problem that would keep the Fed ultra-dovish and increase inflation.
GEOPOLITICAL UPDATE
The high stakes summit between President Biden and Vladimir Putin took place earlier in the month. While both men called the meeting “positive”, it doesn’t appear all that much was accomplished other than an agreement to “consultations” on cybersecurity, a potential compromise on a prisoner swap for two jailed U.S. Marines and a “let’s see what happens” approach from Biden going forward. Reality is, Biden didn’t return home with much for deliverables.
THE WRAP
Looking ahead to the month of July, a just right jobs number could produce the perfect environment for the current rally to continue grinding higher. Let me be clear here. I am not outright bullish. As one trader put it, I am bullishly negative on the market. As I stated last month, a lot of things must go perfect for the bullish trend to continue. However, at some point, the Fed is going to serve up a solid dose of reality to the markets and the economy by reducing their QE substantially and raising interest rates. This will have a bearish impact on the equity markets. However, until then you can’t afford to just sit on the sidelines and miss out on whatever rally is left for you to capitalize on. At this point, the next major catalyst that I am focused on which could move the markets is the Jackson Hole Economic Symposium coming up in late August. If we are going to hear any official announcement from the Fed about tapering, this is the most probable moment for now. As I stated earlier, copper will be a good leading indicator to keep an eye on for any action on this front.
CPK FOCUS
For the month of July, our models continue to hold a 30% allocation. Our broad focus remains on Domestic Equities and Commodities.
For Domestic Equities, our attention is on Small Cap Growth, Small Cap Value, Small Cap Blend and Mid Cap Growth with an emphasis on the Consumer Cyclical, Energy, Basic Materials, Industrial and Financial Sectors.
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 July 2021 Market Action Report. Thanks for joining me. It’s time for me to get back to the markets.
And that action starts, NOW!