AS OF LATE   
        

 

     Well, we can chalk up another winning month for the stock market. This makes 9 months in a row! Time flies when you're having fun, doesn't it? Obviously one of the big strengths of the current stock market is the fact that 2020 was the year the pandemic started and we've been sort of moving and growing out of constrained pocket books from 2020. A lot of people have wanted to get out and spend, spend, spend.

     For the month of July we see the S&P 500 Index rose close to 2% and it was the strongest of the five leading indexes here in the United States. Those five indexes are the S&P 500, the Dow Jones Industrial Average, the Midcap 400, the NASDAQ, and the Russell 2000. 
 

This is the daily movement of the S&P 500 for July 2021

 

     If we break the S&P 500 down into some basic  sector components we see that healthcare delivered the largest returns and energy delivered the largest losses for the month of July. 
 

     Even though healthcare was the winner for the month of July it still lags the S&P overall for the year and even though energy was the biggest loser in the month of July it still leads the S&P sectors for the year by almost a two-to-one margin. Directly behind energy being the biggest winner for 2021, number 2 is real estate stocks and number 3 are financial stocks.

 

     In doing our research, we often see many nuances and tidbits of information that don't seem to always fit intuitive thinking, familiar generalizations or even mantras that have been repeated over and over.
 

     One interesting idea that came out in some recent research is that for many retailers who have a strong online presence as well as a strong brick-and-mortar presence in the marketplace, brick-and-mortar sales have increased more in 2021 than their online sales have. That's not true for everyone out there but there have definitely been some businesses that have grown more in the face to face, brick & mortar mode than they have  In the online mode. One of the reasons that was given for this seeming phenomenon is that people were simply tired of being cooped up in their home and they wanted to get out and do something.
 

BONDS

     Capital Research has long had a love affair with the bond markets. Remember, bond is just another word for a “loan". Think about the largest purchase you or the family you grew up in ever made. It was likely that of a home and most of us took out a loan when we made that purchase. So, bonds really do make the world go round. 
 

     A lot of people don't realize or understand that there are a broader variety of bonds in the investment world than there are stocks. The number of outstanding bond issues outweighs the number of stocks you can buy by more than 1000:1 margin. Bonds come in all shapes and sizes and variations and maturities and risk profiles and purposes. The bond world really and truly is amazing. 
 

     We really haven't mentioned much about bonds overall this year largely because our posture, in terms of the outlook and the opportunity in bonds this year, has actually been something that up to now, has been turned on its head. This is not true of all types of bonds but the largest part of the bond market has not had a good year so far. Below you can see a chart of the intermediate and long-term government bonds. Notice that basically since the beginning of the year bonds have been in negative territory. We also included in our chart a graph of the aggregate of the bond world, the “AGG”.

 

SAVINGS RATES
 

     If you recall, late in the spring of 2020 just after the pandemic began, the savings rates for Americans went through the roof!  As was noted in the May 2020 CRA newsletter, the savings rates for American households skyrocketed to 32.7%! No savings quite like this has ever been recorded for the US, nothing even close! It was mostly conjecture at that point to give the underlying reasons for why the savings rate skyrocketed, some offered the notion that with fear setting in on the economy people were holding on to every dollar they had. Others were noting that since people could not go out and travel openly, they were just sitting on their money and putting it into savings. Those and lots of other ideas were flooded around about this massive spike in the savings rate. Now that we have a little over a year since that statistic came out we get a little better picture of maybe what's really driving it.
 

     As you can see in the chart below, the savings rate did indeed spike upwards and then not too much longer after that it fell off the cliff, only to spike again and fall again. It's spiked once more and now it seems the falling has taken over in earnest.

   
    What many are offering is the explanation for this rise and fall and repetition is simply, stimulus packages it seems that when stimulus money is sent oh, not all of it is spent. Some individuals simply put it in the bank. Which is perfectly their right to do and might be one of the wisest things they could do. Another thing we saw happening throughout 2020 was that credit card balances were dropping quite noticeably. Presumably some people were taking their stimulus checks and simply paying off credit cards. The total balance on credit cards in the US dropped 24% from the end of the third quarter of 2019 to the end of the third quarter of 2020. When stimulus checks were sent, not all of it was getting spent.

 

The Road Ahead

     It's interesting since we have 9 consecutive months of positives in the stock market. We now enter what is statistically the worst 90 day investing cycle of the year. Yes, August through October has historically been the most perilous 90 day cycle within a calendar year. While it is not as notorious as the Bermuda Triangle in terms of it's perilous past, it definitely has it's danger zones.  Will the momentum we have from these winning nine months carry carry us forward resulting in the market not having any negative months or will the historical voracity of this negative 90 day cycle rule the day and hand the market some losses? Be wary, be watchful and aware!

   

 

We remain watchful!

Ken Graves, Chief Investment Officer

Mortgages (click here)