In a year where the global economy’s pace of re-opening was always going to be the main event, financial markets swept aside concerns about inflation and interest rate increases as distractions and focused on encouraging progress in vaccinations and global recovery.

It’s an easy time to be misled by statistics.  Take inflation:  Last month, we learned that ‘core’ inflation rose 3.8% in the twelve months from June 2020 through May 2021.  This sounds alarming.  However, in the prior twelve (June 2019 – May of 2020), it rose just 1.2% (and actually fell 0.6% from March – May of 2020 just before that ‘big’ 3.8% increase).  Putting together these increases of 1.2% and 3.8%, we get 5.0% over two years:  a 2.5% yearly average.  About normal, when you look at the two years as a whole.  And that’s the real story:  Things are returning to ‘normal’ despite what one-year statistics sometimes say.

As the quarter unfolded, financial markets embraced this.  Stocks/equities significantly outgained bonds (your portfolio remains at the higher end of its equity range).  U.S. stocks continued to outperform those overseas due to the faster U.S. recovery thus far (your portfolio remains more tilted to U.S. stocks than ever).  And growth stocks returned to leading the market’s results after value stocks ‘caught up’ a bit last autumn and winter.  As for bonds/fixed income, only the short-term category has avoided losses in 2021.

Of course, we are not yet out of the COVID woods, and there will be further uneven-ness to the global recovery.  As before, at time things will seem ‘too hot’ and at others ‘too cool’.  To paraphrase a good quote from recent months, it’s far easier to shut down a complex economy than to awaken and re-open it.

Last quarter, we wrote that “economic growth should fuel corporate profit gains – always good news for stocks.  And once interest rates stabilize, it should particularly benefit growth stocks”.  Though we believe your portfolio remains well-positioned in its ‘recovery ride’, we continue to watch for conditions which may suggest the need for defensiveness beyond what you already hold in short-term U.S. Government bonds.  Or for an opportunity to better capitalize on Europe’s re-opening when it accelerates.  Our regular re-balancing of your portfolio allows us to do such things.

We send our hopes and wishes for your health, well-being and a replenished spirit as Summer unfolds, and we thank you for the continuing opportunity to work with you.