Market Monitor: June Update

Headlines and Highlights
  • Consumer confidence returns to pre-pandemic level: The June consumer confidence index jumped back to where it was for most of 2019 and just below its February 2020 high, the latest sign of the recovery picking up steam. The index had been climbing slowly but optimism has grown as COVID-19 vaccinations rise, cases fall and the economy reopens. Consumer spending paused this spring but is expected to rise with the renewal of confidence.
  • Bipartisan deal boosts trillion-dollar infrastructure plan: A $1.2 trillion infrastructure proposal that is expected to add to U.S. economic momentum took a big step forward with a bipartisan accord in Congress. Final passage hinges on approval of the budget to fund it and is not expected until fall. Among other top White House legislative priorities, prospects remain uncertain for proposals to raise the corporate tax rate, increase taxes on U.S. companies’ foreign earnings, roll back some individual tax cuts, tax capital gains at death and increase the top capital-gains rate to 43.4%.
  • Stocks hit midyear with solid returns: Led by small caps (up4%), stock indexes reached the halfway point of 2021 with double-digit gains for the year to date across most categories. The Standard & Poor’s 500 finished the first half at a record high with a 15.2% advance, the second-best start to a year since 1998. The value style of investing outperformed growth by four percentage points at the large-cap level in the first half; energy stocks were the top-performing sector, up 45%.
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Sources: Morningstar, Altair Advisers

Our Views
  • Economic growth should be robust in the second half, driven by the service economy’s comeback as demand revs up further for restaurants, travel and other activity. The ISM services sector gauge is at the highest level in its 24-year history.
  • Inflation remains the biggest concern for markets as the second half begins but we expect it to moderate from the recent higher levels. A large percentage of the increases is in categories where prices have surged temporarily as they snap back to life in the reopening – such as used vehicle sales, air fares, lodging and clothing sales. There already are signs the rate of increase in prices year over year is slowing as we move past the one-year anniversary of pandemic-low levels.
  • The labor market’s slow recovery will be a particularly important economic barometer for the rest of the year, with some 7.6 million of the 22 million jobs lost during the pandemic still missing despite all the progress made since the bottom in April 2020. Factoring in the job growth that was taking place before the pandemic when about 200,000 jobs a month were being added, the current jobs hole is closer to 10.6 million. We expect the outlook to improve in the second half due to vaccinations, enhanced unemployment benefits ending and kids returning to school in person.
  • No interest-rate increase is likely for another year or more. The Federal Reserve is monitoring the employment outlook closely and Chair Jerome Powell reiterated to Congress last week that there is a long way to go before it reaches the Fed’s goals, which means monetary policy should remain highly accommodative for the next year.
  • Value stocks have outpaced long-dominant growth stocks this year but growth has narrowed the gap over the last three months. The huge momentum swings from growth to value and now back to growth have left the two investing styles with almost identical gains over the past year – 43.4% for the large-cap value index to 42.3% for its growth peer. We are allocated approximately equally to growth and value and see similar potential for the two areas in the year ahead.

The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice