Market Commentary — August 16, 2021

Markets gained ground last week, shrugging off the resurgence of COVID-19 and its economic implications. Value stocks outpaced growth peers, with materials leading on a sector basis. On the flip side, energy sold off, and info tech names lagged driven by weaker pricing in semis.

Investors took solace from more tepid inflation numbers which aligned with the “transitory” argument. CPI rose 0.5% in July, a calmer reading than June’s 0.9% increase and the smallest monthly uptick since March. While the producer price index (PPI) increased 1.0% sequentially for a second consecutive month, coming in higher than many economists had expected.

The Senate passed the $1 trillion bipartisan infrastructure package, with $550 billion USD in spending to rebuild traditional transportation infrastructure, improve access to broadband internet in rural areas, and upgrade the electric grid and water systems.

Treasury yields ticked higher, as increases in long maturities helped steepen the yield curve. But some of that retraced on Friday when the University of Michigan consumer sentiment survey disappointed.

Thanks to a bounce in cyclical stocks, Blackrock’s $15 billion Momentum Factor ETF (MTUM) has recovered from a very ill-timed rebalancing where it had a 68% reshuffle into value names.

Morningstar reports that investors have poured $705 billion into ETFs, bringing the global tally through July to a record $9.1 trillion.

The floodgates have opened on mutual fund to ETF conversions with JP Morgan announcing plans last week to convert $10 billion of its mutual funds into ETFs. ETFs have grown exponentially in the past decade, now holding almost $6.7 trillion assets in the U.S. market thanks to lower costs, easier access, and tax advantages. Spurred by the “Cathie Wood” effect, actively managed funds, like the ones being converted by JP Morgan, could bring in another $1 trillion to the ETF industry over the next decade.

And if COVID-19 variants and global warming are not making you feel helpless enough, a magnitude 7.2 earthquake just hit Haiti – a stark reminder to be grateful for what you have and to help others who have less.

Here is the link to Children’s Heritage Foundation, a faith-based children’s charity working in Haiti. Click here to give and please pray.

Jane Edmondson
CEO and Co-Founder

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