Our top market takeaways for June 4, 2021.

Markets in a minute

At the headline index level, this week felt like the “Lazy River” after a prolonged ride on “Splash Mountain.” For the past seven trading days, the S&P 500 hasn’t moved more than +/- 0.40% from its prior day close. That’s given us the longest “boring” streak for the headline index since November 2019, before anyone had even heard of COVID-19. Heading into Friday, the S&P 500 was down -27 basis points on the week (still within 1% of all-time highs, though).

The big-picture narrative didn’t evolve all that much, but there were some interesting details:

  • Energy is by far the S&P 500’s best-performing sector on the week and year-to-date (+6.1% since last Friday’s close through Thursday’s; +47.7% on a total return basis since the start of 2021). The sector rose along with oil prices as OPEC+ continued to show production discipline, and demand picked up in real time (last weekend marked the TSA’s busiest period since the start of the pandemic).
  • The Markit Services PMI index hit an all-time high because more people are getting vaccinated and want to get their pent-up ya-ya’s out by traveling, eating at restaurants, and so on. Also, Friday’s payrolls report came in below the average estimate, but the addition of 559k jobs (more than half of which came from Leisure & Hospitality) and 0.3% drop in the unemployment rate points towards continued progress. The recovery continues to carry on, and we don’t think the data will influence significant changes to the Fed’s policy stance in either direction. 
  • Meme stocks are having another moment. Shares of AMC Entertainment climbed nearly +140% over the course of two days. They then fell -18% on Thursday after the company said it would sell over 11 million shares and told investors something along the lines of do you, but our stock price has little to do with our actual business right now.
  • President Biden and Congressional Republicans are still trying to find a middle ground on a bipartisan infrastructure deal. It’s still all talk right now, but the president’s latest proposal is to keep the statutory corporate tax rate at 21% and impose a minimum corporate tax rate of 15%. This still means that over 120 S&P 500 companies’ overall tax bills would go up, but it’s a concession nonetheless. If negotiations fall through, Democrats can still pursue spending and tax changes via the budget reconciliation process without the need for GOP support. 

Quieter weeks like these offer an opportunity to zoom back out and consider our big investment pictures. Are you holding too much cash? Reticent about putting money to work when the market is at all-time highs? Is your portfolio appropriately diversified?


Investment hygiene checkup

We (are supposed to) go to the dentist twice a year so that we can be scolded or praised for our dental habits. Mechanics recommend getting your car to the garage for maintenance every 30,000 miles. A lot of us are in the habit of a good spring and winter cleaning to refresh our homes as the seasons change. So, this week, we’re here to remind you to check up on your financial hygiene by thinking through whether your financial picture is adhering to three of our tried-and-true investing principles.

1. The year is 2021, and cheeseburgers don’t cost a quarter anymore. There are a lot of different reasons why we might feel comfortable holding on to cash. But for most of us, the entire point of saving is to use our money for something we will need or want to pay for in the future. That necessitates an approach to managing those savings that gives us the best shot at growing our money at a rate that beats, or at least keeps up with, the pace at which prices rise (A.K.A., inflation).

We’ve been talking about inflation a lot, usually in the context of why we don’t view it as a near-term threat to the Fed’s easy policy stance or the persistence of the market rally. Even our sanguine outlook for price increases acknowledges that they’re still happening, though at different rates in the various areas in which we might spend our money. Consider the chart below:

This chart shows annualized price changes in the United States for tuition, medical care, housing, sweets, gasoline, coffee, cars, apparel and overall inflation from December 31, 1982, to December 31, 2020. The charts shows that the annualized price change over this time period for tuition was 6.0%; for medical care it was 4.5%; for housing it was 2.8%; for sweets it was 2.3%; for gasoline it was 1.9%; for coffee it was 1.8%; for cars it was 1.0%; for apparel it was 0.5%; and for overall inflation it was 2.6%.

Sure, a cookie or a cup of coffee may feel like a small expenditure relative to a new car or four years of college education, but all of these items add up. Cash-like instruments earn next to nothing in the present era (short-dated Treasury bills, for example, are yielding under 0.05%), let alone enough to keep up with the Fed’s long-term average 2% overall inflation target. So, are you holding too much cash? If you find that you are, work with your advisor to figure out how you can put it to work according to your goals, ability and willingness to take risk, and your time horizon.

2. Let the good times roll. The S&P 500 has posted 26 new all-time record closes so far this year, compared to a full-year average of 19 since 1990. Even on the days that we haven’t closed at highs, there hasn’t been a single one in 2021 when the market wasn’t within 5% of its most recent all-time record. That’s not to say we won’t see more significant drawdowns at some point this year: 40 years of history show that, on average, the S&P 500 experiences an intra-year decline of -14% but has still mustered positive calendar-year returns 75% of the time. Regardless, for investors considering putting money to work in the U.S. stock market today, you’re doing so near or at highs. The old adage says to “buy low and sell high,” so should you hold off on investing until the market pulls back?

We think not. Time is one of the most powerful allies an investor can have. Let’s assume that when an investor puts money to work, they do so in a diversified manner that reflects their long-term strategic asset allocation. Here, call it 55% stocks and 45% bonds. If you’re investing for the long term (more than five years), the data tells us to feel confident that we can realize positive annualized returns—even if markets are at or near a high.

This chart shows the S&P 500 Index level from January 2, 1989, to June 3, 2021. The chart shows that the S&P 500 rose from 277.7 on January 2, 1989, to 1527.5 on March, 24, 2000, dropped to 776.8 on September 10, 2002, rose to 1565.2 on September 9, 2007, dropped to 676.53 on March 9, 2009, rose to 2930.8 on September 20, 2018, dropped to 23.51.1 on December 24, 2018, rose to 3370.3 on February 19, 2020, dropped to 2237.4 on March 23, 2020, and has since risen again to 4192.9 on June 3, 2021.  The chart also shows that the average annualized total returns for a balanced portfolio when invested at a calendar-year high for the S&P 500 Index from January 2, 1989, to March 24, 2021, were +4.9% after one year, +7.2% after three years, and +7.4% after five years. The chart also shows that the worst observations for total returns for a balanced portfolio when invested at a calendar-year high for the S&P 500 Index from January 2, 1989, to March 24, 2021, were -20.0% after one year, -4.4% after three years, and +1.1% after five years. The chart also shows that the percentage of negative observations for total returns for a balanced portfolio when invested at a calendar-year high for the S&P 500 Index from January 2, 1989, to March 24, 2021, were 25% after one year, -13% after three years, and 0% after five years. A balanced portfolio is defined as having an allocation of 55% S&P 500 and 45% Bloomberg Barclays U.S. Aggregate Index, and is rebalanced quarterly.  Lastly, the chart shows that the annualized returns on U.S. dollar cash when invested at a calendar-year high for the S&P 500 from January 2, 1989, to March 24, 2021, were 3.2% after one year, 2.9% after three years, and 2.8% after five years.

3. You don’t shop in only one aisle of the supermarket, do you? We tend to gravitate toward ideas and things that feel familiar to us (never have I ever bought a different brand of laundry detergent than the one that was always beside my parents’ washing machine), and investors around the world are inclined to act similarly when it comes to constructing their investment portfolios. For example, the U.S. equity market is more than half of the global stock market, yet nearly three-fourths of the entire U.S. equity market is owned by Americans. Brits own nearly 50% of U.K. stocks, but they only account for 5% of the global market. Are you exhibiting home-country bias?

The chart shows the percent of the equity market owned by domestic investors and the MSCI ACWI weight for that market as of December 31, 2019, for the United States, Japan, Australia, Canada, the United Kingdom and Germany. The charts shows that the percent of the equity market owned by domestic investors is 71% in the United States, 71% in Japan, 69% in Australia, 64% in Canada, 47% in the United Kingdom, and 45% in Germany. The chart also shows that the weight of the All Country World Index of the United States is 56%, Japan is 7%, Australia is 2%, Canada is 3%, the United Kingdom is 5%, and Germany is 3%.

Diversification is crucial, and it’s just as much about having exposure to a mix of geographies as it is about asset classes, sectors and styles. American investors’ preference for U.S. stocks may have been validated by their outperformance over the course of the post-Global Financial Crisis decade, but our outlook today advocates for a more balanced approach to allocating across different regions. For example, we think the tides could be changing favorably for European markets.

When it comes down to it, the various aspects of your personal financial situation should form the basis of your investment approach. The things we want to do with money—our goals—are at the root of the reasons why we invest in the first place. Principles like the ones referenced above offer guidelines as to how we can invest most effectively.

All market and economic data as of June 2021 and sourced from Bloomberg and FactSet unless otherwise stated.

We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.


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  • The MSCI China Index captures large- and mid-cap representation across China H shares, B shares, Red chips, P chips and foreign listings (e.g., ADRs). With 459 constituents, the index covers about 85% of this China equity universe. Currently, the index also includes Large Cap A shares represented at 5% of their free float adjusted market capitalization.
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