Market Commentary — June 21, 2021
The Fed rattled markets with surprisingly hawkish comments after their June policy meeting last week, talking about earlier-than-expected rate hikes. Large caps held up better than small caps, and growth stocks outpaced value names thanks to sell-off in energy and financial names.
Basically good news on the vaccination front has allowed the economy to rebound from the pandemic faster than expected and the Fed is “talking about tapering.” Policymakers now expect two rate hikes by the end of 2023 and although inflation is still expected to be “transitory”, there is still much uncertainty regarding the inflation outlook.
Bond yields were all over the place after the meeting, with the 10-year finally closing the week at 1.438%.
U.S.-listed ETFs still managed to pull in $38.3 billion last week according to ETF.com, boosting YTD flows to $455.8 billion. U.S. equities saw the largest inflows. Fixed-income ETFs saw outflows, especially the energy-heavy junk bond sector. And with the Fed signaling inflation of more than 3% through 2021 and potentially above 2% through 2023, it’s not surprising that negatively yielding short-term bond ETFs sold off as well.
We have been favoring interest rate hedged intermediate corporate bond ETFs, floating-rate ETFs, and TIPS exposure since the end of March on rising rate and inflation concerns. At the end of the day, economic growth is a nice problem to have if you are positioned correctly.
Speaking of which, the lumber rally appears to have run out of gas. Even though housing demand is still red hot, homebuilders have been delaying construction to combat rising lumber costs. Where prices go from here is anyone’s guess, but there are 2 ETFs to play this trade; WOOD and CUT.
Hope all the dads and father figures out there had a wonderful Father’s Day this year! My dad helped inspire my love for the stock market and baseball. Miss you dad – this year and always!
CEO and Co-Founder