June ended on a strong note for stocks, as the banking sector led the S&P 500 to a record high, making it the 33rd time this year that the index reached a new record. This was the fifth straight month of gains for the S&P, which has already gained 14% on the year. Stocks were boosted by several positive corporate news announcements, including:

  • Morgan Stanley – doubling its quarterly dividend and added $12 billion in stock buybacks
  • Wells Fargo – doubling its quarterly dividend and adding $18 billion in stock buybacks
  • Boeing – United Airlines announced it was purchasing 200 Max planes
  • JPMorgan – Plans to buy ESG investment startup OpenInvest
Source: https://www.marketwatch.com/investing/index/spx

An increase in business spending

A major reason why equities were higher this month was thanks to an increase in corporate spending. With businesses spending more, economic growth surged in many areas. Toward the end of June, weekly jobless claims fell by 7,000 to 411,000 and core capital goods shipments increased by 0.9%.

Businesses are spending more than ever on new equipment and technology, something that is a positive economic sign. Technology investment was up almost 25% in the first three months of 2021 compared to the same period in 2019, before the coronavirus upended the US economy. Furthermore, 60% of large corporations are expected to increase such investment this year, according to a survey of corporate executives.

While investment in technology that could lead to more automation and efficiency represents a potential swoon for the economy as a whole, it may leave many workers in the dust. Advances in automation for many industries often leads to a reduction in jobs necessary, as machinery and computers replace humans on production lines and in factories. Research from the Brookings Institute suggests that Black and Hispanic workers are the most at risk of job loss due to automation. On the flipside, the jobs created from such technologies are often higher-paying and present a better quality of life for those that attain them.

Consumer confidence is back

After a year of fighting to regain momentum, it appears consumers are just about as confident today as they were before the COVID-19 pandemic. The Consumer Confidence Index based on the present rose to 127.3, up from 120.0 in May, and the index based on future expectations rose from 100.9 to 107.0. Consumers claim to be more upbeat in regards to the labor market and future business conditions.

Source: https://www.conference-board.org/data/consumerconfidence.cfm

According to Lynn Franco, Senior Director of Economic Indicators at The Conference Board:
“Consumers’ assessment of current conditions improved again, suggesting economic growth has strengthened further in Q2. Consumers’ short-term optimism rebounded, buoyed by expectations that business conditions and their own financial prospects will continue improving in the months ahead. While short-term inflation expectations increased, this had little impact on consumers’ confidence or purchasing intentions. In fact, the proportion of consumers planning to purchase homes, automobiles, and major appliances all rose—a sign that consumer spending will continue to support economic growth in the short-term. Vacation intentions also rose, reflecting a continued increase in spending on services.”

Home prices still on the rise

The booming housing market which many hoped would calm shows no signs of letting up. In April, US home prices rose at their fastest pace in 30 years. The S&P CoreLogic Case-Shiller Index reported a 14.6% annual gain, up from 13.3% a month prior. This is the 11th month in a row that housing prices have risen.

Source: https://finance.yahoo.com/news/case-shiller-home-price-april-2021-130003824.html

Analysis of the report spoke to the surge in housing demand that has lasted well past the global pandemic:

“We have previously suggested that the strength in the U.S. housing market is being driven in part by
reaction to the COVID pandemic, as potential buyers move from urban apartments to suburban homes.
April’s data continue to be consistent with this hypothesis. This demand surge may simply represent an
acceleration of purchases that would have occurred anyway over the next several years. Alternatively,
there may have been a secular change in locational preferences, leading to a permanent shift in the
demand curve for housing. More time and data will be required to analyze this question.”

The result of rising prices has actually been a slowdown in existing home sales. There was a 0.9% decrease in existing home sales in May as the median sale price of these homes continued to grow. Middle-income Americans are finding it harder and harder to afford housing in a climate where interest rates remain low and there remains a low supply of inventory on the market.

Does China have a debt problem?

The Chinese Communist Party (CCP) might have successfully seen its way through the coronavirus pandemic, but it still has a huge economic problem on its hands. Chinese debt has been growing steadily over the past several years. Why is this? For one, the nation used debt as a means to generate growth in its economy, and while this practice did subside, the pandemic brought about a need to increase debt levels once again.

As the coronavirus worsened, financial institutions in the country relaxed their restrictions on business loans, making it easier for debt to be acquired by companies in need. As a result, the country’s debt, which only a few years ago was substantially lower than the likes of the Eurozone and United States, is now on par with these countries. This debt has increased across government, household, and corporate debt as well.

Source: https://www.cnbc.com/2021/06/29/china-economy-charts-show-how-much-debt-has-grown.html

But there is even more to this debt story than meets the eye. Some analysts estimate that there are trillions of dollars more of additional debt in China that goes unreported. Because most of the country’s debt on the local level is owned by government-operated financial institutions, these institutions can use opaque debt vehicles that go underreported or completely unreported. This leaves investors wondering if the Chinese debt situation is worse than previously believed.

Articles We’re Reading

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Millions of jobs and a shortage of applicants. Welcome to the new economy… (link)

As the EU debates rules for its economy, a more ambitious political vision is inevitable… (link)

Market Snapshot

For the Month Ending 6/30/2021 (Cumulative Returns)1

1Source – Morningstar, Inc. Corporate Bonds is presented as the iShares iBoxx $ Investment Grade Corporate Bond ETF. Municipal Bonds is presented as the iShares National Municipal Bond ETF. High Yield Bonds is presented as the iShares iBoxx $ High Yield Corporate Bond ETF. 10 Year Treasury refers to the valuation of a 10 Year Treasury Note, a debt obligation issued by the U.S. Department of the Treasury. Fed Funds Target represents upper limit of the federal funds target range established by the Federal Open Market Committee. Inflation Rate provided for the purposes of this report by the U.S. Bureau of Labor Statistics. Unemployment Rate calculated by the U.S. Bureau of Labor Statistics. WTI Crude Oil refers to the price of a barrel of West Texas Intermediate NYMEX) Crude Oil. Gold – Spot Price relates to the valuation of an ounce of gold, as traded on the NYSE Arca Exchange. U.S. Dollar refers to the U.S. Dollar Index (DXY). All Returns are denominated in USD (United States Dollar), unless otherwise explicitly noted.

Did You Know?

July 4th fun facts

Many people got their grills and coolers ready for another July 4th celebration. And after a tough year of quarantining through the coronavirus pandemic, this year’s festivities may have been more over the top than usual. In light of the holiday, here are some fun facts of our nation’s Independence Day that you might not have known:

  • Only John Hancock and Charles Thomson (secretary of Congress) signed the Declaration of Independence on July 4th. Most of the other signees made their mark a month later.
  • Three US presidents have died on July 4th: John Adams, Thomas Jefferson, and James Monroe.
  • On July 4, 1778, George Washington ordered a double ration of rum for his soldiers to celebrate the holiday.
  • About 150 million hot dogs are eaten on July 4th each year.

. …(link)

Presented by the Investment Committee of Lake Street, an SEC Registered Investment Adviser

The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will be successful. Investing involves risk and you may incur a profit or a loss.