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Weekly Economic and Stock Market Commentary – June 14, 2021


Weekly Economic and Stock Market Commentary – June 14, 2021

As for the stock market specifically:

The growth stocks came back to life last week, especially the small ones. The value stocks lagged, except for the commodity-related. The combination of those factors, and likely more of which I am unaware, gave us a week where 3 of the 4 lines in the top grid gained last week. I again get the pleasure of saying we start the week at a record high for one market average, and near-record levels for the other 2 domestic indices.

This week brings us the quarterly quadruple witching event. This frequently results in more volatility than usual, but that remains to be seen. The good news is that all the indicators are on offense.

I decided to take some time today to write about our federal debt. I can remember when one side would decry the other party’s “billion-dollar budget deficits as far as the eye could see.” At this point, a deficit of a billion-dollar deficit would be chump change.

The past 12 years frequently showed increasing tax revenues for the federal government, and, yet the deficits continue to grow. In English, spending grew faster than revenues. In addition, interest rates (ie. carrying cost of debt) continued to drift down for government, and private debt.

I believe the Federal Reserve, in conjunction with our “elected friends in Washington,” came to an agreement that the Federal Reserve would act as a buyer of any debt authorized by Congress. The Federal Reserve is allowed to create money on a whim, and the rest of us see the impact in higher prices. More on this below.

An aggravating factor is that we are in a period of reasonable economic growth, so these programs aren’t likely to be “temporary.”

We now are in WEALTH ACCUMULATION for all market aspects.

Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.

Below is where our indicators stand as of June 11, 2021 (Courtesy Dorsey, Wright, and Associates).

On a general note:

The Department of Labor informed us something we already knew – prices in May increased by a bunch. The Consumer Price Index rose 5.0% in May, which was the highest jump since 2008. I will allow for some of the gains coming off a very low base reading of May 2020, but the majority of the gains are real.  The core rate of inflation rose 3.8% in May. That was the largest increase in core prices in 29 years. Used car and truck prices rose 7.3% in May.

The Treasury Department announced budget figures for the first 8 months of the fiscal year. To nobody’s surprise, the number came in at a record level. The deficit came in at $2.1 trillion dollars. Tax collections through May came in at a record level of $2.6 trillion dollars. That was a 29% increase over fiscal 2020. Spending rose 20%, but from a higher baseline to a level of $4.7 trillion dollars. May’s numbers were skewed this year due to the extension of the tax deadline until May 15th.

Questions or want to talk about this Economic and Stock Market Commentary? Email me at philip.rongo@ibexwealth.com.