July 20, 2021

Financial Markets

  • The trend of equity prices marching higher continued with major U.S. indices hitting several new highs and various international indices near record highs. Market leadership flip-flopped between growth and value as expectations for economic growth and inflation shifted and on developing COVID news.
  • Longer-term U.S. Treasury bond yields moved lower (as prices increased) as investors increasingly viewed the recent rise in inflation as transitory. Short-term yields rose after the Federal Reserve Open Market Committee’s (FOMC) median projection for the Fed funds rate indicated two rate hikes in 2023 compared to no hikes in 2023 in the prior projection.
  • Oil prices rose 24% for the quarter to as high as $74 per barrel, the highest level since 2018. Prices for other commodities soared for most of the quarter.  Copper and lumber futures hit several all-time highs.

Overview of the Economy

  • Manufacturing and service activity continued to rebound globally but shortages hampered some businesses. In the U.S., the unemployment rate and the number of layoffs declined.  The number of job openings is at an all-time high of almost 1 million.  Many companies across industries report difficulty finding people to hire.
  • Inflation is rising in the U.S. and in several countries including China. The U.S. producer price index jumped 6.2% over the prior year, the largest increase since 1981.  The FOMC’s preferred measure of inflation was 3.9% in May, well above the 2% target.  The median price for existing homes in the U.S. hit a record high in May.

Notable Events

  • The Delta variant of the COVID virus spread in Asia with the increasing number of cases leading to new restrictions and lockdowns and worries about the potential impact on the global economic recovery.