Market highlights

As we reach the midpoint of summer, the nation is only about 50% vaccinated; the Delta variant is disturbing and mask mandates continue to be an issue as children in the South return to school. Drought conditions are affecting the West and Midwest as wildfires and floods take their toll. Approximately 3.6 million Americans face the potential of eviction as the federal moratorium on evictions expired at the end of July, even though funding is available to assist families who are behind in their rent. At the Tokyo Olympics, China has presently won 29 gold medals to the United States’s 22; in total medal count the United States has won 64 to China’s 62; the Russian Olympic Committee has a total of 50 as the Games enter the final week.

July was a positive month for big cap and technology funds but troubling for small-cap funds and the Treasury-10 year bonds. Comex gold, crude oil, and retail gasoline increased in value while Eurozone markets improved slightly as the top three Asian markets fell hard.

 
 

U.S. Markets

The Dow Jones Industrial Average gained about +1% for the month, up +433 points with a close of 34,935 and a YTD of +12.5%. Doing slightly better, the S&P 500 gained about +1.5% during July by adding +98 points for a month-end close of 4,395 and a +14.5% YTD, earning this month’s blue ribbon. Also gaining speed, the NASDAQ enjoyed a +1% increase during the month, increasing +168 points to 14,672 and a YTD of +12%. Faltering for the first time this year, the Russell 2000 lost -84 points and drooped to 2,226, down this month by about -1.5% and surrendering its blue-ribbon YTD which came in at +13% for the year.

 

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European and Asian Markets

The United Kingdom’s FTSE index suffered a slight loss of -5 points and settled at 7,032 with an +8% YTD. Mostly standing still during July, the German DAX picked up +13 points and finished the month at 15,544, holding on to its +12% YTD for the second consecutive month. France enjoyed an increase of +105 points as the CAC advanced to 6,612, up +1% for a +16% YTD.

Asian markets were in decline for the second consecutive month as the Shanghai Stock Exchange relinquished -194 points and held the line at 3,397 with a negative YTD of -2%. Hong Kong’s Hang Seng suffered a similar fate by losing -2,867 points as the index closed at 25,961 with a negative YTD of -4.5%. Japan’s Nikkei index took the hardest fall by losing about -3% of its value during July, surrendering -1,476 points and ending a tumultuous July at 27,283.


News from China

“A fresh Covid outbreak in China has spread to more locations, raising concerns over the country's vulnerability to the highly contagious Delta variant.
More than 300 cases have been detected within a span of 10 days.
Chinese media is dominated by news on the outbreak, and the country's top respiratory diseases specialist has reportedly expressed grave concern. The government has imposed fresh travel restrictions and is testing millions. It is unclear how many in China are fully vaccinated, although authorities say more than 1.6 billion doses have been administered so far.

A total of 15 provinces have now confirmed cases. Cases in 12 of the provinces are connected to an outbreak that began in Nanjing in eastern Jiangsu province. Authorities have attributed the spread to the Delta variant and the domestic tourism season.

In Zhuzhou, in central Hunan province, more than a million people have been told not to leave home for three days while mass testing and a vaccination drive is organized. The regional government described the situation there as "grim and complicated". In other cities, entire communities are being placed under emergency lockdown as cases of the Delta variant emerge.” (The BBC, August 2, 2021.)

 

Fixed Income

The Federal Open Markets Committee last met on July 27 – 28, resulting in the following: “The Fed did not, as expected, lift interest rates from their near-zero level, nor did it announce when it planned to let up on its $120 billion in monthly bond purchases. Nevertheless, with inflation soaring quickly and some employment measurements finally starting to show sustained improvement, it did hint at considering such a move in the future.

As the nation’s central bank met this month, however, countervailing forces were exerting pressure on the economy. State economies have revved up as social distancing measures have been mostly scaled back, allowing everyday consumers to return to their pre-pandemic life. But the quick restart has put pressure on global supply chains, causing the prices of some goods (such as cars and gas) to explode, which limits how quickly the economy can return to its pre-pandemic normal.

The Fed has two jobs: maximize employment and keep prices stable at around 2%. Both tasks have been increasingly difficult since March 2020.
After a few uneven jobs reports, the employment situation seems to be on the mend. Employers added 850,000 jobs in June, a vast improvement over the previous two months of disappointing jobs gains after millions of Americans became vaccinated, more businesses opened and economic life resumed. For instance, the number of air travelers returned to the pre-pandemic level over the July 4 holiday.

Meanwhile, inflation is rising dramatically. Prices in June rose by 5.4% compared to 12 months before, according to the Consumer Price Index, the largest such gain since August 2008. Anyone in the market for automobiles, homes, or even a night out on the town can feel the sting in their wallet. You’d think this combination would cause the Fed to rethink its accommodative stance, but it believes there’s more progress to be made before taking its foot off the gas.

The unemployment rate, for instance, rests at just below 6%, compared to 3.5% before the pandemic. Moreover, the Fed believes the recent inflation numbers, while noticeable, are transitory and will fade over time. What’s more, the Fed announced a year ago that it would welcome somewhat higher inflation for a period since inflation had been so weak in the decade or so before the pandemic.

And then there’s the pandemic to contend with. “The path of the economy continues to depend on the course of the virus,” the Fed said in its statement. “Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.”

The Fed will continue to proceed cautiously as Covid-19 remains a public health threat and hindrance to economic growth. The recent spread of the Delta variant has only caused the Fed to be that much more circumspect.” (Forbes Advisor, July 28, 2021.)

10-Year Treasuries: As economic data indicated a slowdown in growth, U.S. Treasury yields slipped. “The Fed’s statement said “progress” had been made on its employment and inflation targets. However, Fed Chairman Jerome Powell cautioned that “substantial further progress” had not yet been reached on these goals. PNC chief economist Gus Faucher said the comments indicated that the Fed had started the “tapering clock” on paring back its asset purchases. Tiffany Wilding, U.S. economist at PIMCO, said on Thursday that the Fed’s statement suggests that it could announce the first reduction in bond purchases as early as September. However, Wilding said it “reaffirmed our view that December is the most likely timing for any announcement.” (CNBC, July 29, 2021.)

 

Commodities

Comex gold increased +$54.10 per ounce during July for a value of $1,816.90 but under its December 31 end-of-year value of $1,892, a decrease of -4% YTD. 

West Texas Intermediate Crude oil extended to a four-month appreciation but just barely, rising a meager +12 cents per barrel to $73.62, its second consecutive month in the $70 – $80 range while maintaining its +34% YTD. A gallon of retail unleaded gasoline had a national average of $3.17, up +6 cents during the month and +32% YTD since its $2.15 per gallon price last December 31.

 

U.S. Economy

GDP: “The U.S. economy rose at a disappointing rate in the second quarter, the Commerce Department reported Thursday in a sign that the U.S. has escaped the shackles of the Covid-19 pandemic but still has more work to do.

Gross domestic product, a measure of all goods and services produced during the April-to-June period, accelerated 6.5% on an annualized basis. That was slightly better than the 6.3% gain in the first quarter, which was revised down narrowly.
While that would have been strong prior to the pandemic, the gain was considerably less than the 8.4% Dow Jones estimate. Gross private domestic investment fell 3.5% as declines in private inventory and residential investment held back gains. Rising imports and a 5% decline in the rate of federal government spending, despite the ballooning budget deficit, also were factors, the Bureau of Economic Analysis report said.

The overall increase came thanks to increasing personal expenditures, which rose 11.8% as consumers accounted for 69% of all activity. Nonresidential fixed investment, exports, and state and local government spending also helped boost output.

The personal savings rate dropped sharply, tumbling to $1.97 trillion from $4.1 trillion in the previous period.

The headline gain was a yardstick for how far the economy has come from the shutdowns imposed during the early days of the pandemic when governments across the country halted large swaths of economic activity to combat Covid. At its nadir, the economy collapsed 31.4% in the second quarter of 2020; it bounced back 33.4% in the subsequent three-month period and has continued to push toward normal since.

Though output has remained below its pre-pandemic level, the National Bureau of Economic Research pronounced the recession that began in February 2020 to have ended just two months later, the shortest on record. However, the second quarter is likely to be the high point of the pandemic recovery.

“The good news is that the economy has now surpassed its pre-pandemic level,” wrote Paul Ashworth, chief U.S. economist at Capital Economics. “But with the impact from the fiscal stimulus waning, surging prices weakening purchasing power, the delta variant running amok in the south, and the saving rate lower than we thought, we expect GDP growth to slow to 3.5% annualized in the second half of this year.” (CNBC, July 29, 2021.)

 

Job Growth: The U.S. Bureau of Labor Statistics will release its July employment report, the Job Openings and Labor Turnover Survey (JOLTS) on Friday, August 6. Economists expect to see approximately 788,000 nonfarm payrolls, down 68,000 jobs from June’s data of 850,000. The rate of unemployment is expected to decline 0.2% from 5.9% in June to an anticipated 5.7% in July. Analysts also anticipate an increase in average hourly wages by +3.9% year-over-year. If there are more jobs added during July than expected, over 1 million, the Fed may reduce its bond purchases and that might cause a market sell-off as inflation fears run through the market. However, if the number of jobs is weaker than projected, it’s possible the market might rally instead because inflation might be kept at bay.

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New Home Sales: “The U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly announced the following new residential sales statistics for June 2021: Sales of new single‐family houses in June 2021 were at a seasonally adjusted annual rate of 676,000, according to estimates.  This is 6.6 percent below the revised May rate of 724,000 and is 19.4 percent below the June 2020 estimate of 839,000. The median sales price of new houses sold in June 2021 was $361,800.  The average sales price was $428,700.  The seasonally‐adjusted estimate of new houses for sale at the end of June was 353,000.  This represents a supply of 6.3 months at the current sales rate. The July report is scheduled for release on August 24, 2021.”  (U.S. Census Bureau and the U.S. Department of Housing and Urban Development, July 26, 2021.)

Existing Housing Sales: “Existing-home sales increased in June, snapping four consecutive months of declines, according to the National Association of Realtors®. Three of the four major U.S. regions registered small month-over-month gains, while the fourth remained flat. However, all four areas notched double-digit year-over-year gains.

Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums, and co-ops, grew 1.4% from May to a seasonally adjusted annual rate of 5.86 million in June. Sales climbed year-over-year, up 22.9% from a year ago (4.77 million in June 2020).

"Supply has modestly improved in recent months due to more housing starts and existing homeowners listing their homes, all of which has resulted in an uptick in sales," said Lawrence Yun, NAR's chief economist. "Home sales continue to run at a pace above the rate seen before the pandemic."
Total housing inventory at the end of June amounted to 1.25 million units, up 3.3% from May's inventory and down 18.8% from one year ago (1.54 million). Unsold inventory sits at a 2.6-month supply at the current sales pace, modestly up from May's 2.5-month supply but down from 3.9 months in June 2020.

The median existing home price for all housing types in June was $363,300, up 23.4% from June 2020 ($294,400), as every region recorded price jumps. This marks 112 straight months of year-over-year gains. "At a broad level, home prices are in no danger of a decline due to tight inventory conditions, but I do expect prices to appreciate at a slower pace by the end of the year," Yun said. "Ideally, the costs for a home would rise roughly in line with income growth, which is likely to happen in 2022 as more listings and new construction become available."

Properties typically remained on the market for 17 days in June, unchanged from May and down from 24 days in June 2020. Eighty-nine percent of homes sold in June 2021 were on the market for less than a month.

Single-family home sales decreased to a seasonally adjusted annual rate of 5.14 million in June, up 1.4% from 5.07 million in May and up 19.3% from one year ago. The median existing single-family home price was $370,600 in June, up 24.4% from June 2020.” (The National Association of Realtors®, July 22, 2021.)

Manufacturing: “Economic activity in the manufacturing sector grew in July, with the overall economy notching a 14th consecutive month of growth, say the nation's supply executives in the latest Manufacturing ISM® Report On Business®.

The July Manufacturing PMI® registered 59.5 percent, a decrease of 1.1 percentage points from the June reading of 60.6 percent. This figure indicates expansion in the overall economy for the 14th month in a row after contraction in April 2020. The New Orders Index registered 64.9 percent, decreasing 1.1 percentage points from the June reading of 66 percent. The Production Index registered 58.4 percent, a decrease of 2.4 percentage points compared to the June reading of 60.8 percent. The Prices Index registered 85.7 percent, down 6.4 percentage points compared to the June figure of 92.1 percent, which was the index's highest reading since July 1979 (93.1 percent).
Business Survey Committee panelists reported that their companies and suppliers continue to struggle to meet increasing demand levels. As we enter the third quarter, all segments of the manufacturing economy are impacted by near record-long raw-material lead times, continued shortages of critical basic materials, rising commodities prices, and difficulties in transporting products. Worker absenteeism, short-term shutdowns due to parts shortages, and difficulties in filling open positions continue to be issues limiting manufacturing growth potential.

Optimistic panel sentiment remained strong, with 13 positive comments for every cautious comment. All of the six biggest manufacturing industries — Computer & Electronic Products; Fabricated Metal Products; Chemical Products; Food, Beverage & Tobacco Products; Transportation Equipment; and Petroleum & Coal Products, in that order — registered moderate to strong growth in July.” (Institute for Supply Management® (ISM®), August 2, 2021.)

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Exports: The latest data is for May 2021. “The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced that the goods and services deficit was $71.2 billion in May, up $2.2 billion from $69.1 billion in April, revised. May exports were $206.0 billion, $1.3 billion more than April exports. May imports were $277.3 billion, $3.5 billion more than April imports.

The May increase in the goods and services deficit reflected an increase in the goods deficit of $2.3 billion to $89.2 billion and an increase in the services surplus of $0.1 billion to $17.9 billion.

Year-to-date, the goods and services deficit increased $110.9 billion, or 45.8 percent, from the same period in 2020. Exports increased $101.6 billion or 11.4 percent. Imports increased $212.5 billion or 18.7 percent.” (U.S. Census Bureau and the U.S. Bureau of Economic Analysis, July 2, 2021.)

Imports: Reporting the latest data, which is for May 2021, the Bureau of Economic Analysis stated that the “imports of goods and services increased $3.5 billion, or 1.3 percent, in May to $277.3 billion. Imports of goods increased $2.7 billion and imports of services increased $0.7 billion. The increase in imports of goods reflected increases in industrial supplies and materials ($2.6 billion) and in foods, feeds, and beverages ($0.8 billion). A decrease in capital goods ($1.1 billion) partly offset the increases. The increase in imports of services reflected an increase in travel ($0.6 billion).” (Bureau of Economic Analysis, July 2, 2021.)

Forbes also shared the following: “U.S. imports increased 7.03% over the 2019 record year and 17.40% over last year. Exports are also performing well, up 0.89% over the first four months of 2019 and 12.50% over 2020. This, of course, means the U.S. trade deficit is in record territory as well. Indeed, it topped $315.22 billion, the first time above the $300 billion mark in the first four months of the year.

Mexico is the nation’s top-ranked trade partner, with an increase of 2.98%, followed by Canada (2.61%) and China (13.57%). China finished 2020 as the nation’s top trade partner and tends to increase its trade in the second half of the year. The three are accounting for 43.23% of all U.S. trade this year. In fact, they have accounted for more than 40% of all U.S. trade for at least two decades through April, with 2020 being the only exception.

Last year, U.S. trade with China had fallen so rapidly during its shutdown and then the U.S. shutdown that the three accounted for 39.80%. China’s percentage of U.S. trade for the first four months was 11.22%, the lowest total since 2008 when the world was tussling with the mortgage-led financial crisis. This year, China’s percentage of U.S. trade was up to 14.01%, which remains below the percentage in the comparable periods of the four years between 2015 through 2018.

U.S. trade totaled $1.41 trillion through April, with exports at $547.55 billion, or 39% of the total, and imports at $862.78 billion. that percentage — 39 cents on the dollar — is comparable to the percentage for most years. The gain over the same four-month period in 2019, what would turn out to be a record-setting year, was $61.53 billion. Of that total, U.S. trade with China accounted for $23.60 billion, or 38.35%. Only one other country registered an increase of more than $10 billion — Vietnam, its trade with the United States up 45.82%, or about 10 times faster than the U.S. average of 4.56%. Vietnam ranks eighth among U.S. trade partners, up five from 2020. It passed Taiwan, India, Switzerland, Ireland, and the Netherlands.” (Forbes, June 8, 2021.)

Retail Sales: As published by Bloomberg on July 16, “U.S. retail sales rose unexpectedly in June, reflecting fairly broad gains across spending categories and wrapping up a solid quarter for household demand. The value of overall retail purchases advanced 0.6% last month following a downward revised 1.7% drop in May, Commerce Department figures showed Friday. Excluding autos, sales jumped 1.3% in June. The value of retail sales has risen sharply this year, supported by government stimulus, elevated savings, and vaccinations. Consumers are beginning to shift more of their purchases toward services. Combined with still-solid retail demand, economists forecast household spending expanded at a robust pace in the second quarter.
Nine of 13 retail categories posted increases in June sales, including solid gains at electronics and appliance outlets, clothing stores, and restaurants. Sales at motor vehicle and parts dealers fell 2% in June, likely in response to limited inventory as automakers face a supply chain crunch. A global semiconductor shortage has restrained vehicle production and pushed up prices.

Clothing-store sales rose 2.6% last month, and 47.1% from a year ago; electronics sales increased 3.3% and were up 37.3% from June 2020; receipts at restaurants and bars climbed 2.3%, sales at non-store retailers, which include e-commerce, advanced 1.2% in June; gas station receipts climbed 2.5%. The retail figures aren’t adjusted for price changes, so sales reflect both changes in costs and demand.”

Producer Price Index (PPI): A leading economic indicator for measuring prices paid by producers of goods and services, the Bureau of Labor Statistics reported the PPI for final demand increased 1.0 percent in June. Final demand prices rose 0.8 percent in May and 0.6 percent in April. Prices for final demand less foods, energy, and trade services rose 0.5 percent in June following an increase of 0.7 percent in May. For the 12 months ended in June, the index for final demand less foods, energy, and trade services moved up 5.5 percent, the largest advance since 12-month data were first calculated in August 2014. (July 14, 2021.)

Consumer Price Index (CPI): A leading economic indicator gauging prices paid by consumers, data reported by the Bureau of Labor Statistics on July 13 revealed “the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.9 percent in June on a seasonally adjusted basis after rising 0.6 percent in May. This was the largest 1-month change since June 2008 when the index rose 1.0 percent. Over the last 12 months, the “all items” index increased 5.4 percent before seasonal adjustment; this was the largest 12-month increase since a 5.4-percent increase for the period ending August 2008.

The food index increased 0.8 percent in June, a larger increase than the 0.4-percent increase reported for May. The energy index increased 1.5 percent in June, with the gasoline index rising 2.5 percent over the month. The index for all items less food and energy rose 0.9 percent in June after
increasing 0.7 percent in May.

The all items index rose 5.4 percent for the 12 months ending June; it has been trending up every month since January when the 12-month change was 1.4 percent. The index for all items less food and energy rose 4.5 percent over the last 12-months, the largest 12-month increase since the period ending November 1991. The energy index rose 24.5 percent over the last 12-months, and the food index increased 2.4 percent.”

Unemployment: “In the week ending July 24, the advance figure for seasonally adjusted initial claims was 400,000, a decrease of 24,000 from the previous week's revised level. The previous week's level was revised up by 5,000 from 419,000 to 424,000. The 4-week moving average was 394,500, an increase of 8,000 from the previous week's revised average. The previous week's average was revised up by 1,250 from 385,250 to 386,500.” (Department of Labor, July 29, 2021.)

Consumer Sentiment: “The Conference Board Consumer Confidence Index® was relatively unchanged in July, following gains in each of the prior five months. The Index now stands at 129.1 (1985=100), up from 128.9 in June. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—rose from 159.6 to 160.3. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—was virtually unchanged at 108.4, compared to 108.5 last month.

Consumer confidence was flat in July but remains at its highest level since February 2020 (132.6),” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Consumers’ appraisal of present-day conditions held steady, suggesting economic growth in Q3 is off to a strong start. Consumers’ optimism about the short-term outlook didn’t waver, and they continued to expect that business conditions, jobs, and personal financial prospects will improve. Short-term inflation expectations eased slightly but remained elevated. Spending intentions picked up in July, with a larger percentage of consumers saying they planned to purchase homes, automobiles, and major appliances in the coming months. Thus, consumer spending should continue to support robust economic growth in the second half of 2021.” (The Conference Board, July 27, 2021.)

Curious News: China’s regional interests include Afghanistan. “With the U.S. in retreat, China is likely to increase its strategic footprint in Afghanistan by leveraging its strategic relationship with the Taliban's main backer, Pakistan, and its own long-standing ties with that militia. To co-opt the Taliban, China has already dangled the prospect of providing the militia the two things it needs to govern Afghanistan in whole or in part -- acquiescence to its rule, if not formal recognition, and much-needed infrastructure and economic development assistance. And the Taliban, rising to the bait, is going out of its way to assuage China's concerns. Clearly, a Taliban-dominated Afghanistan will not only be under Pakistan's sway but also greatly aid China's designs. America's exit has opened the path for an opportunistic China to make strategic inroads into Afghanistan and deepen its penetration of Pakistan, Iran, and Central Asia.” (Nikkei Asia, July 27, 2021.)

Final Reflections

Though it may be hard to foresee in the rich fullness of summer, falling autumn leaves are not that far away. Labor Day weekend is just on the other side of summer’s horizon and the pressing chill of a dawning winter lies just beyond. Take this special precious time to enjoy your family and friends and the blessings you’ve gathered. More will come, as it always does, but there is wealth and value in appreciating the blessings that fill our lives today. All of us at Carlton Wealth are grateful for you and for your successes, and we wish you a continued abundance of every kind.

 

Joseph Maas

Information contained herein is based on data obtained from sources believed to be reliable, however, such information has not been verified by Carlton Financial Group, LLC d/b/a Carlton Wealth or Synergy Financial Management, LLC. The information provided has been prepared and distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy or an offer of advisory services.

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