Economic aftermath at tail end of COVID (Audio Available)
By Megan Horneman. © Verdence Capital Advisors
- May 2021 and May 2020 share similarities with reopenings
- Manufacturing struggles to keep up with demand
- Bonds rally for the second month as Fed provides view on inflation
- International equities outperform U.S.
- Commodities rally but Bitcoin stumbles
In a month where nearly 90% of the U.S. fully reopened, Americans can draw similarities to last year when the world reopened at a very limited capacity. Now states are allowing businesses to open up 100% with no more mask mandates and nearly half of Americans have received their first dose of the vaccine.
As we reach the end of the pandemic, pent-up demand has caused GDP to surge. We think it is important to acknowledge the COVID aftermath effects in economic data during May and review asset performance entering into the next phase of the economic cycle.
- Manufacturing: Pent-up demand has led to one of the highest backlogs of orders, the lowest inventories, and high delivery times.
- Consumer: Confidence remains steady and personal savings rate is more than 10%.
- Inflation: Inflation levels jumped while core consumer prices rose at the fastest pace since 1981. However, commodity pressures show signs of easing as lumber prices drop more than 20%.
- Housing: Surges in home prices, high material costs, and record low inventories have pressured housing sales. Existing, new, and pending sales all dropped for the month.
- Fixed Income: The Fed has reiterated that inflation right now is temporary, there is no indication of bond purchases easing and mixed economic data drove Bloomberg Barclays Aggregate Index higher for the second month in a row.
- International bonds lead: New and developed market bonds have outperformed fixed income in the U.S.
- Long-term bonds benefit from Fed rhetoric: Long-term bonds outperformed short-term for the second month in a row.
- Investment-grade rallies past high yield: There was a slight change in Treasury yields. A positive credit environment helped investment-grade rally and surpassed high yield for the second month.
- Global Equities: A strong eagerness for risk rallied global equities as COVID restrictions relax. International equities have bounced back and outperformed the U.S. S&P 500 for the first time in four months.
- Developed international equities outperform EM and U.S.: Western Europe (ex: Spain, Portugal) leads in gains in developed markets as countries open up to welcome tourists and improve their vaccine distribution. Asia fell behind because global technology weakened on shortages and valuations.
- Value rotation continues: In May, the value rotation returned, and value exceeded growth in all three market cap levels. Small-cap value led the U.S. in gains
- Alternatives: In May commodities rallied, Bitcoin plummeted 40% due to threats of regulation, and speculators were deterred by the volatility of it whereas gold had the fastest monthly gain in just 10 months.
This material was prepared by Verdence Capital Advisors, LLC (“VCA”). VCA believes the information and data in this document were obtained from sources considered reliable and correct and cannot guarantee either their accuracy or completeness. VCA has not independently verified third-party sourced information and data. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. This material is being provided for informational purposes only and is not intended to provide, and should not be relied upon for, investment, accounting, legal, or tax advice.
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By Megan Horneman