Telemus Weekly Market Review August 16th - August 20th, 2021

    | August 23, 2021

    The Changing Seasons

    As we head into the back half of August, whether we like it or not, we must face the fact that we are nearing a transition away from summer and into the fall. Similarly, we seem to be at transition point in the economy where stimulus is running off and the post-vaccine surge in demand is moderating. The market is now beginning to grapple with the challenge of forecasting the cadence of economic activity as we move into the next phase of the economic cycle. This has led to pockets of higher volatility in both the stock and bond markets. This past week the S&P 500 fell -0.6% but had been down more before a late week rebound pared losses. The S&P 500 is up +19.4% year-to-date and has set 49 different record highs thus far in 2021. It is only reasonable to expect pockets of volatility and some modest pullbacks as economic cycle continues to advance.

    More recently economic indicators have exhibited signs that the pace of improvement may be slowing. This doesn’t mean the economy is in decline, but rather the rate of growth is decelerating. This was most prevalent this past week when we saw a -1.1% decline in retail spending. This measure compares the level of retail spending from June to July. While the rate of spending declined month-over-month, $617.7 billion worth U.S. retail sales in July of 2021 was still 18.9% higher than $519.4 billion worth of sales registered in July of 2019, prior to the pandemic.

    In our view, its only reasonable to expect some level of moderation from current levels. In aggregate many economic indicators remain well ahead of where they were pre-COVID. A negative comparison may sound bad on the surface, but one must dig deeper into the data to properly understand it. There is a common investment expression that the market is a discounting mechanism. This phrase refers to the fact that asset prices seek to discount future expectations. As we move forward, the market is going to adjust expectations around several factors that frankly are challenging to forecast. In addition to economic indicators, such as retail spending, the timing and pace of the Federal Reserve’s asset purchases (QE), and the normalization in consumer behavior (particularly in light of the rise in COVID-19 cases stemming from the delta variant) are a couple examples of added considerations that need to be discounted to varying degrees in asset prices.

    We have recently seen some evidence in how a shift in expectations might play out. This past quarter companies such as Facebook and Amazon reported very strong financial results only to see their share prices fall as their guidance around future earnings depicted a slowdown in the rate of growth. The share price of Amazon is now below where it started 2021, having fallen -2% year-to-date. The forward-looking discounting mechanism of the market is beginning to factor in the next stage of the economy and how it might impact the profitability of a company such as Amazon.

    We believe the market, in aggregate, has begun to shift its sights away from what has worked over the past year-and-a-half and is looking at what might be different going forward. Not everyone holds the same expectations, nor do they see things occurring in the same cadence. This could lead to more volatility in share prices and potentially some minor pullbacks in stock prices. Ultimately, economic indicators and corporate earnings remain robust. Given this, we don’t see modest pullbacks as something to be alarmed about. Rather episodes of higher volatility, and potentially a pullback in prices, are a byproduct of a normal functioning market that is adjusting its forward-looking expectations.

     


     



    All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Telemus Capital cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. Investment decisions should always be made based on the client's specific financial needs, goals and objectives, time horizon and risk tolerance. Current and future portfolio holdings are subject to risk. Risks may include interest-rate risk, market risk, inflation risk, deflation risk, currency risk, reinvestment risk, business risk, liquidity risk, financial risk, and cybersecurity risk. These risks are more fully described in Telemus Capital's Firm Brochure (Part 2A of Form ADV), which is available upon request. Telemus Capital does not guarantee the results of any investments. Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, and may lose value.

    The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. There is over USD 11.2 trillion indexed or benchmarked to the index, with indexed assets comprising approximately USD 4.6 trillion of this total. The index includes 500 leading companies and covers approximately 80% of available market capitalization. An index is not a security in which an investment can be made, as they are unmanaged vehicles that serve as market indicators only and do not account for the deduction of management fees and/or transaction costs generally associated with investable products.

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    Matt Dmytryszyn

    Matt joined the Telemus team in 2018. As Chief Investment Officer, he leads the firms the investment process and research effort. Matt has experience as an equity analyst and portfolio manager and has advised corporate pension plans on their manager selection. He’s been quoted in Money Magazine and Barron’s.

    Matt Dmytryszyn mdmytryszyn@telemus.com
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