Locally based CPA firm since 1956

Wednesday was the last day of the second quarter and final day of the first half of 2021. The S&P 500 has risen 14.4% year to date, while the Nasdaq Composite and the Dow have each gained more than 12%. 

Market worries: During the final trading days of June US equities gained after a recent bipartisan agreement on an infrastructure package, increasing the likelihood of the deal becoming law.  The plan will inject $1.2 trillion over eight years, providing $312 billion to transportation projects, $65 billion to broadband, and $55 billion to waterways.  As we have said before – the devil is in the details.  

Nearer and dearer to our Texas hearts, oil prices neared a three-year high following signs of stronger demand and tighter supply.  Expectations are more and more optimistic because of higher demand stemming from improved economic activity.  

US Treasury yields moved higher as investors digested new inflation data and the Fed’s comments indicating a more hawkish attitude which surprised the markets.  Since we are hearing the terms hawkish vs dovish regarding the Fed, let me explain what that means.  

A hawk is a policy maker who is predominantly concerned with the potential impact of interest rates as they relate to fiscal policy.  Hawks are seen as willing to allow interest rates to rise to keep inflation under control.  

A dove is less worried about inflation and more worried about weak growth, high unemployment, or even deflation.  

The Fed speak indicated an increasing concern regarding inflation, a willingness to allow rates to creep higher which is a change in rhetoric from earlier in the year when most of the discussion centered around employment and economic recovery.   

Why it matters – as inflation ramps up, so do interest rates, which closes the gap between the risk-free rate (interest on borrowing from the government) and the expected returns of the S&P 500.  As the gap closes, accepting the risk of investing in the S&P is less attractive to large institutions who may choose to simply remove money from the stock market and buy U S Treasuries.  

 

Fund Facts About the Fourth of July – 

  • The official vote where we declared independence from Great Britain occurred on July 2nd, 1776.  The Declaration was published in the papers on July 4th.  Only two men signed the Declaration of Independence on July 4th: Charles Thompson and John Hancock.  The other 54 delegates signed over the course of the next month. 
  • The Declaration was signed on a laptop. (Huh?) Thomas Jefferson drafted the Declaration of Independence on a writing desk that could fit over one’s lap.  This device was referred to at the time as a ‘laptop’.  
  • Robert G. Heft, who was 16 at the time, designed a new flag using the old 48-star flag and $2.87 worth of blue cloth and white iron-on material. His design earned him a B-minus to which he challenged by sending it to Washington D.C. to be considered by President Dwight D. Eisenhower. According to his obituary, Heft was one of thousands to submit a flag design, but he was the only person who actually stitched together a flag and shipped it to D.C.
  • Do you own a beach towel, shorts, t-shirt, or any other item that is representative of the U.S. flag?  Turns out that you are in violation of the U.S. Flag Code.  
  • Americans will spend more than $1 billion on fireworks, consume 150 million hotdogs, drink about $1 billion worth of beer, and display about $1 billion worth of American flags that are imported from ………get this………..China.  

 

Check out my monthly MarketWatch blog at: https://wcmtexas.com/marketwatch 

Have a question? Let me know! Email me at kcompton@wcmtexas.com.