Markets Produce Small Gain Despite Consumer Confidence Dropping
- Stocks were mixed last week. We saw global markets (represented by the MSCI All Country World Index) up 0.7% and domestic stocks (represented by the S&P 500 Index) up 0.8%. It was both U.S. small companies (represented by the Russell 2000 Index) and emerging markets (represented by the MSCI Emerging Markets Index) which lagged. They were down -1.1% and -0.9%, respectively.
- Expectations are that the labor market will continue to improve. In the last report, there were 10.1 million U.S. job openings, which means there are more openings than unemployed workers.
- You’ve heard us say that our economy is driven primarily by the consumer. The University of Michigan consumer confidence survey fell to its lowest level since December 2011. This is something to keep an eye on as consumer demand has been a large part of the expected economic recovery.
- The Consumer Price Index report showed that July inflation came in at 5.4%, above the period year prior. That was in line with economist expectations.
- The Senate passed the new infrastructure bill, which is a bipartisan package totaling about $1 trillion. This will now move to the House of Representatives.
- After the economic conditions in February through April 2020, and along with the growing concerns around the delta variant, consumers and investors are rightfully cautious with their view on the current economic condition. We’re still cautiously optimistic and do expect a continued recovery. We wanted to mention a few of these reasons:
- As we mentioned above, there are a record amount of job openings. For the first time in a couple of years, there are more job openings than the number of unemployed Americans.
- Record amounts of monetary and fiscal government stimulus. Between the federal government and the Federal Reserve, they are pulling nearly every lever they have to support the economy. While the Fed may look to taper their asset purchases, we don’t expect interest rates to rise until late 2022 at the very earliest.
- Something that doesn’t get discussed enough is the health of the U.S. household. Leading up to the Great Financial Crisis in 2007/2008, households took on a significant amount of debt. Looking at the figures today, the household debt-to-income ratio shows a consistently declining amount of debt since the peak in 2007/2008. That declining rate indicates that there is excess capacity for consumers to borrow to drive additional spending.
- I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.
