This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s.
June 16: The U.S. retail-sales report for May indicates that the stimulus-fueled bounce earlier this year is dissipating. Retail sales fell 1.3% month over month, disappointing expectations of a more muted 0.8% M/M decline….
Going forward, there will be a shift in consumer spending toward activities and sectors most impacted by pandemic restrictions at the expense of Covid-19 winners. The May retail-sales report shows that food-services and drinking places and clothing stores—the two sectors most severely affected by the pandemic—experienced the strongest sales in May, with both exceeding their pre-Covid sales level. Meanwhile, consumer spending on nonstore retailers, building-material and garden-equipment dealers, and hobby stores—which all experienced robust sales growth over the past year—declined in May. This reversal in spending patterns is also corroborated by the ISM surveys, which show that the improvement in services has recently been outpacing that of the manufacturing sector.
The U.S. economy is entering a (benign) slowdown phase—a risk to cyclical equities that typically underperform during this stage of the business cycle. Our U.S. equity strategists favor industries such as hotels, restaurants, entertainment, and airlines, which will benefit from pent-up consumer demand for services.
Volatility on the Rise
BTIG Quick View
June 16: Whether it is the two-year note yield breakout above 0.20% or the five-day realized volatility in the
index pivoting from an unimaginable 1.38%, “flatlining,” or the motionlessness of asset prices prevailing since the 10-year-yield peak at the end of March, appears to have ended. The Federal Reserve’s uncertain certainty on inflation being “transitory,” the labor market supply/demand imbalance clearing, and the timing of more taper talk (forget Jackson Hole in late August—the normally “sleepy” July 28 FOMC meeting is now likely to have as many fireworks as the Fourth of July) are likely to underpin volatility this summer.
What is certainly certain is that there is more inflation straight ahead, and stocks’ discomfort three to four months after an unnaturally low volatility period and with 2%-plus core PCE is well documented. We continue to see value in owning SPX July 30 straddles, and with the expectation of 10-year yields resuming their climb toward 2%—now an equity headwind—would skew equity exposure toward yield-indifferent defensives such as healthcare and away from both transports (high oil is beginning to bite) and yield-sensitive, high-multiple growth.
—Julian Emanuel, Michael Chu
Muni Market Challenges
June 16: Favorable supply-demand dynamics have helped drive high-quality municipal bonds to…
Go to the news source: Stock Market Volatility Is About to Resume