Weekly Investment Update

The unique nature of this most recent recession, marked by a very sharp contraction in economic activity due to government mandated limits on activity followed by unprecedented fiscal and monetary stimulus as well as a quick economic reopening, may have potentially created some logistical challenges. In other words, factories and other key elements of the global supply chain may have shut down for economic or health-related reasons, and now must get back online quickly to support significant demand stemming from cash rich households and businesses. These significant gaps in supply juxtaposed against above-average demand have the potential to create inflationary pressures.

The difference between the yield for Treasury Inflation Protected Securities (TIPS) and traditional (“nominal”) Treasuries is called the breakeven inflation rate.  This difference can be thought of as a market-based expectation of future inflation. If future inflation is higher than the breakeven rate, TIPS are expected to outperform nominal Treasury securities. The chart below highlights the historical breakeven rate between 5-year nominal Treasuries and 5-year TIPS, which current stands at 2.6%.

US Treasury Breakeven Inflation Rate (5 Year)

Graph depicting the US Treasury Breakeven Inflation Rate (5 Year) from January 2002 to January 2021

Source: Bloomberg

Key Economic Releases This Week

Day Report Period Consensus Est. Previous
Tuesday, April 13 Consumer Price Index (month-over-month) March 0.5% 0.4%
Wed., April 14 Import Price Index (month-over-month) March 0.8% 1.3%
Friday, April 16 Building Permits (annual rate) March 1.74 million 1.72 million
Friday, April 16 Housing Starts (annual rate) March 1.61 million 1.42 million
Friday, April 16 U of Michigan Consumer Sentiment (prelim) April 88.1 84.9
Source: Bloomberg

Asset Class Returns

Category Representative Index YTD 2021 Full Year 2020
Global Equity MSCI All-Country World 7.9% 16.3%
US Large Cap Equity  S&P 500  10.4% 18.4%
US Small Cap Equity  Russell 2000 13.9% 20.0%
Foreign Developed Equity MSCI EAFE 6.1% 7.8%
Emerging Market Equity MSCI Emerging Markets 3.4% 18.3%
US High Yield Fixed Income ICE BofAML High Yield Bond 1.6% 6.2%
US Fixed Income Bloomberg Barclays US Aggregate Bond -2.9% 7.5%
Cash Equivalents ICE BofAML 0-3 Mo Deposit 0.0% 0.5%
Source: Morningstar as of April 9, 2021

Prices & Interest Rates

Representative Index Current Year-End 2020
S&P 500 4,129 3,749
Dow Jones Industrial Avg. 33,801 30,497
NASDAQ 13,900 12,886
Crude Oil (US WTI) $59.32 $48.52
Gold $1,743 $1,893
US Dollar 92.16 89.94
2 Year Treasury 0.16% 0.13%
10 Year Treasury 1.67% 0.93%
30 Year Treasury 2.34% 1.65%
Source: Bloomberg, US Treasury as of April 9, 2021

Past performance may not be representative of future results.  All investments are subject to loss.  Forecasts regarding the market or economy are subject to a wide range of possible outcomes.  The views presented in this market update may prove to be inaccurate for a variety of factors.  These views are as of the date listed above and are subject to change based on changes in fundamental economic or market-related data.  Please contact your Financial Advisor in order to complete an updated risk assessment to ensure that your investment allocation is appropriate.   

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