By Morgan Christen
CFA, CFP, CDFA, CEO and CIO
Welcome,
Since our inception, clients have asked us, what is a Spinnaker?
To get technical, it is a large, usually triangular sail flown by a boat as a headsail when running before the wind. In other words, a sail to use when the wind is at your back.
After a bit of choppy weather a few weeks ago when Chairman Powell admitted the Fed may need to move rates a year sooner, seas have calmed, and the market is flying the spinnaker proudly.
The powerful wind at our back includes strong economic growth, solid earnings, low interest rates and a bond market that is not reacting to the “threats” of inflation.
Inflating the Sail
We are currently in the inflation is “transitory” camp. Meaning, we do not think the high levels will persist. Already we are seeing a pullback in commodities as the chart above illustrates.
There are areas such as wages that will not be transitory; once those move up, they will not move down. There is a bit of push and pull regarding wages, as we saw a record high number of job openings at the end of April, sitting at 9.3 million.
Companies are offering higher wages and additional compensation to lure in employees, but with all the stimulus, many are not taking the bait (as indicated in the job opening numbers).
Additionally, more Americans quit in April than any other month on record. Many quit for higher wages, while some quit for flexible work hours (office v. home). We are not ready for higher prices and companies know that, so they resort to trickery.
Welcome to more shrinkflation, when companies reduce the size or quantity of their products while charging the same price or even more. If you want proof of shrinkflation look HERE.
Stocks
Equity markets around the globe posted positive returns in the second quarter.
Looking at broad market indices, developed markets outperformed emerging markets for the quarter.
The “economy opening trade” slowed a bit as value stocks underperformed growth while REITs took the top position for the quarter.
Large cap companies outpaced their smaller counterparts as the rally matured through the quarter. We also watched crypto currencies fall from their highs.
Bonds
Yields dropped modestly as most market participants are not concerned with inflation at the present time. After flirting with 2% on the 10-year note, the quarter saw rates drop roughly 28 basis points, from 1.74% to 1.46%. Rates were still higher than they stood a year ago June. As of this printing, interest rates have continued their move downward.
Disclosure
The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the securities mentioned. The information contained herein, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. Opinions expressed herein are subject to change without notice.
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