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Markets Up Absent Major News Items

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Friday, June 11, 2021

Even though the calendar still says we’re officially toward the end of spring, it sure feels like summer out here. And with almost all the major economic news and Q1 earnings reports having been gone through this week, we expect an early start to a summer weekend to take over the markets today.

Then again, investors in the Dow may have something to say about this, +100 points in the pre-market. The S&P 500 and Nasdaq are up single-digits at this hour.

This gives us an opportunity, half-way through 2021 (where does the time go?!), to “take stock” a bit: the Dow and S&P 500 have been tracking relatively aligned, year to date — +14% and +14.5%, respectively, although both have been within a flattish range since mid-April. Both hit highs at the end of the first week in May, but most of the year-to-date gains came in the first four months of the year so far.

The Nasdaq is a different story: +10.4% year to date — and on an upward trajectory this week, as well — but in a series of peaks and valleys: we saw highs in mid-February given back in early March. The sequence repeated with a fresh all-time high in April shot down in mid-May. Much of this has been part of the rotation trade out of growth and into cyclicals, with the desired result of less-than-staggering gains in the face of the Great Reopening.

Outpacing the field so far in 2021 has been the small-cap Russell 2000, +18.8% year to date. In this index, the gains were the result of a series of ramp-ups: in early January, early February, early March, late April and late May/early June. Small caps generally bring a sense of “risk on” appetite to the market, with the Russell often — though not always — tracking the buys into Nasdaq growth and tech stocks.

However, a better return on investment so far this year has been in home equity, +20% (according to a survey among mortgage holders, which does not account for all homeowners). An accumulated $1.9 trillion, or $33,400 per U.S. borrower, has come about largely on high demand and low supply, driving prices up — especially in March (+11%) and April (+13%). Sales have been slowing of late on affordability issues, but demand ensures prices will remain elevated for now.

Next week will be a big one for economic metrics, and we’re only a short month away from the open spigot of Q2 earnings season (where does the time go?!). Meantime, if the weather is pleasant where you are, perhaps risk putting your feet up a moment with the understanding that the markets are indeed reflecting a truly improving economy, and should continue to do so for a while.

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