Weekly Reflection for July 16, 2021

Market Update

This week Fed Chairman Jerome Powell addressed lawmakers regarding the economic health of the country. He once again stated that the U.S. is in a “transitory” environment regarding inflation. With Wall Street growing more concerned about rising inflation, Powell was resolute in his message that inflation is temporarily high due to pent up demand and a reopening economy. “This is a shock going through the system associated with reopening of the economy, and it has driven inflation well above 2%. And of course, we’re not comfortable with that" he said. In fact, the inflation number rose to 5.4% at the end of June up from 5%. Inflation hasn’t risen this fast since 2008.

There has also been a dramatic decrease in the 10-year Treasury yield. The yield on the 10-year dropped to 1.32% on Thursday from as high as 1.70% in May. The continued purchasing of U.S. debt by pension funds, foreign investors and others has driven yields lower and prices higher, given the inverse relationship between yields and prices. Low yields have also pushed mortgage rates back down, giving property owners another opportunity refinance their mortgages.

For the week, the Dow Jones Industrial Average and the S&P 500 are down slightly for the week. The NASDAQ, on the other hand, is down more, mostly due to the inflation number. This makes sense as growth companies, whose investors usually have to wait longer for positive earnings, have a tendency to react poorly to higher inflation. Lower than expected consumer sentiment data also worried investors. Not all was lost though as retail sales numbers came in nearly three times higher than Wall Street had expected. For now, we continue the wait-and-see strategy with inflation as Powell holds pat with his “this is transitory” stance.

Holiday Season

We will be on holiday throughout parts of the next month so will be posting more condensed weekly reviews. If you too will be traveling and heading to the airport this season, be prepared. TSA is seeing a rapid uptick in the number of passengers coming through security checkpoints. This is terrific news for the hospitality industry that has been starved of customers and income for over a year. While numbers are not back to 2019 levels, the trend line looks very strong. Many airports have advised that passengers arrive extra early to offset the stresses of long lines and crowds. Pack your patience along with your sense of adventure!