Market Monitor: Stay in May; It'll Be Okay?
May Recap and June Outlook
May saw robust earnings reports and a lot of optimism from consumers and businesses and unexpectedly high inflation data, along with an apparent labor shortage. The markets carried on nonetheless, posting positive returns despite a somewhat shaky month.
The change in mask guidance from the CDC marked a clear turning point in the fight against COVID and brings us even closer to a return to normal. Moreover, the achievement of several states in meeting the July 4th vaccination goals is a signpost that even if we don’t get there by July 4th, we will get there – apparently with lotteries, free beer, and a bunch of other interesting vaccine incentives helping out.
Let’s take a look at some highlights
If you’ve looked at your home on Zillow recently, you probably have noticed a big jump in the potential value of your home recently. The housing boom has been in the headlines all month. The data alone is newsworthy: CoreLogic reports that housing prices increased 11.3% in March 2020 — the most in 15 years — and were up 2% from February when prices jumped by 10.4%, which had been the largest annual increase since 2006. It’s not just existing homes that are bringing top dollar. Redfin reports that more than a quarter (25.7%) of single-family homes for sale in America during the first quarter were new construction homes. That’s up from 20.4% a year earlier and represents the highest share on record.
The potential impact on peoples’ lives and personal wealth is even more interesting. Millennials who are reaching peak home-buying years may be being priced out. For many of them, the question is whether to buy at these prices or to try to wait it out and put money to work in what will hopefully be an infrastructure-spending driven market. The prospect of lower prices as housing-critical supply chains come back online is fueling the “pause” idea. Until then, it certainly feels like a seller’s market.
The S&P 500 slowed its roll a little bit with only one new closing high for the month. Likely driven by a strong earnings season, May was another positive month for market performance. Through June 7th, 2021, the S&P 500 is up 13.26% (green line), international markets are up 11.65% (blue line), and the aggregate bond markets are down 2.21% (orange line).
Source: Kwanti
In looking ahead, we will be paying particularly close attention to the next Fed meeting in June, watching for signs the Fed may start tapering bonds further. Already the Fed has announced that they will unwind their corporate bond balance sheet by the end of the year. However, with heightened inflation numbers and an improving economy, there has been increased debate about if the Fed should start to taper its monetary support. So far, the Fed has maintained that it plans to hold low-interest rates for long; we will be watching to see if they continue with that position.
The Smart Investor
What can investors do? Since we don’t believe in timing the market and the old market adage of selling in May and going away, consider the midpoint of the year as a good time to take stock of both your investing plans and your goals. From a “pipes and plumbing” standpoint, halfway through the year is also an excellent time to review retirement goals, income needs, and your tax situation. You have time to make necessary changes that will impact your bottom line, whether that means increasing allocations to a 401(k) or thinking about converting assets to a Roth IRA in preparation for retirement income withdrawals. Of course, if you need any help or have any questions, shoot us a message at info@rivercitywealth.com.
The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Bloomberg Barclays US Aggregate Bond Index is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States and is used for measuring the performance of the US bond market. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index. The MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada. It is maintained by MSCI Inc., a provider of investment decision support tools; the EAFE acronym stands for Europe, Australasia and Far East. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index. The information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. Past performance is not indicative of future results.