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Market Commentary

June 2021

Civista Wealth Management Logo
Frank P. Sudal, CFP®, CFA
Trust Investment Management

Total Returns (%) as of May 31, 2021

Fixed Income YTD 1 Mo 3 Mo 1 Yr 3 Yrs 5 Yrs 10 Yrs
U.S Aggregate

-2.29

0.33

-0.14

-0.40

5.06

3.25

3.29

High Yield

2.25

0.30

1.54

14.96

7.11

7.39 6.41
Global

-3.98

1.23

-0.05

6.28

3.38

2.59

1.09

Equities






U.S. Large Cap

12.62

0.70

10.72

40.32

18.00

17.16

14.38

U.S. Small Cap

15.30

0.21 3.34

64.56

13.06 16.01

11.86

Developed International

10.07

3.26 8.81

38.41

8.23 9.77 5.88
Emerging Markets

7.26

2.32

3.28

51.00

9.65

13.88

4.10
Source: Morningstar.  U.S. Aggregate - BBgBarc US Agg Bond.  High Yield - BBgBarc US Corporate High Yield.  Global - FTSE WGBI NonUSD.  U.S. Large Cap - S&P 500.  U.S. Small Cap - Russell 2000.  Developed International - MSCI EAFE.  Emerging Markets - MSCI EM.
 

Volatility spiked due to lingering concerns over inflation, however, investors did not “sell in May and go away”. All the major indices closed higher for the month. Developed international and emerging markets climbed 3.26% and 2.32%, respectively. U.S. large caps rose 0.70%, while U.S. small caps trailed behind the group, managing a small 0.21% gain. Global economic growth projections increased, driven primarily by progress combating the pandemic. Fixed income also advanced as U.S. Treasury yields drifted lower for the month.

The Organization for Economic Cooperation and Development (OECD) revised their 2021 growth projections upward to 5.8% for the global economy and 6.9% for the United States. Both the massive fiscal stimulus and vaccine rollouts are driving the improvement. The OECD expects world GDP growth to be 4.4% and U.S. GDP growth to be 3.6% next year. The countries with higher vaccination rates are experiencing a quicker economic recovery.

According to FactSet, expected second quarter earnings for the S&P 500 are higher today then at the start of the quarter. The index is now expected to report the highest year-over-year growth in earnings since Q4 2009 for Q2. Analysts also expect double-digit earnings growth for the second half of 2021. The above-average growth rates for the second quarter and all of 2021 are due to a combination of higher earnings this year and an easier comparison to weaker earnings in 2020 due to the negative impact of COVID-19 on numerous industries.

The Federal Reserve Board (Fed) released the minutes from its April 5 through April 28 meetings at the end of May. Improved activity across most sectors, ongoing supply-chain disruptions, and difficulty filling positions, particularly at the entry-level, were cited. There is an expectation that inflation will be elevated above 2% in the short-term due to supply chain issues. Remaining uncertainty associated with the pandemic prompted the Board to maintain the current primary credit rate (0.25%). The CME FedWatch Tool is forecasting a 95% probability that the Fed will not change rates this year. While the 5 and 10 year breakeven inflation rate has been trending upward (now 2.51% and 2.39%, respectively) it is well below the latest 5% Consumer Price Index reading for May. This suggests that investors also expect inflation to trend downward over time.

Although the prospects for the global economy have brightened, we anticipate that the market will likely take a breather and allow earnings to catch up. This would allow valuations to make their decent back within normal levels.