June 2021 Market Update
- The Federal Reserve has reiterated that it will keep rates low, but markets are showing some skepticism as rates rise for some bond sectors
- Job growth was slower than expected showing that there are still challenges facing the economy
- Sustainability and supply chain resilience are becoming more important
Low rates may not hold
There has been some skepticism that the Fed will be able to hold off on rate increases as was previously thought. The COVID shock was more like a temporary halt than a systematic recession. The rebound should be seen as a transitory restart rather than a long-term recovery. As this restart has proven to be robust, the Fed may not be able to keep rates untouched if inflationary pressures emerge.
Indications that a rate rise may be imminent would include if we were to see personal consumption expenditures hovering at 2% for a prolonged amount of time, the supply shortages causing real and sustained inflationary pressures, and the Fed hiking inflationary expectations.
The cooling off of job growth in April signals that we’re not out of the woods yet. Economic challenges do persist, such as labor shortages and difficulty in finding workers for new jobs.
There are also shortages of materials such as semiconductors and lumber which has put a damper on the growth surge that would have benefited certain industries such as the auto industry.
It is an uncertain path ahead, as the job report spells out, and one that nobody can predict. However, given all these circumstances, we still see it as unlikely that this short-term slowing will affect the Fed’s rate policy.
Sustainability coming more into the picture
The disruption created by the pandemic has opened the door for sustainability to play a bigger role in businesses and the economy. The question is whether green investments will become a permanent trend or if the shifts in consumer demand are a transient response to supply shocks.
Blackrock. Weekly market commentary, May 10, 2021. Mind the (rate) expectation gap.
Lee, Don, and Stokols, Eli. (7 May, 2021) Los Angeles Times. Why April’s disappointing jobs report may not be so bad for Biden. Retrieved from https://www.latimes.com/politics/story/2021-05-07/jobs-report-shows-a-disappointing-april-rebound