Stableford Capital Insights

Stableford Market Commentary: August 2021

Stableford Capital—August 2021 Review: 3 Key News Items From August

Summer is (unofficially) over, and the kids are back to school. Hopefully, you were able to get away and enjoy yourself for a while. In case you missed it while on vacation, there were some key news items during August.

The first is the Fed has—in no uncertain terms—informed investors that it will begin to taper its bond purchases. There is still debate regarding the timing, but it is likely sooner rather than later. Notification is the first step towards normalization of interest rates and it is worth noting that the Fed has successfully executed the messaging. The next step will be managing expectations regarding the timing and speed of the taper—but everyone knows it is coming. The big risk to the Fed from here is that inflation is not “transient” and they surprise markets with faster-paced tapering or rates moves to offset it.

The second news item of note was the negative surprise to the Michigan Consumer Sentiment survey which at 70.3 was the lowest level since 2011 (Exhibit 1). What drove the precipitous drop from 81.2 in July? Covid. Specifically, the Delta variant surprised many with the alacrity with which it spread.

Consumer Sentiment Rapid Drop to Levels not seen in 10 Years

[caption id="attachment_3691" align="alignnone" width="1914"]

Exhibit 1—Consumer Sentiment Rapid Drop to Levels not seen in 10 Years

Exhibit 1—Consumer Sentiment Rapid Drop to Levels not seen in 10 Years[/caption]

Rapidly dropping consumer sentiment can lead to reduced consumer spending, a key risk to an economy that is 70% driven by consumers. So far though, investors are shrugging it off, believing that Delta variant cases have peaked, as evidenced by the continued increase in interest rates. The 10 Yr. U.S. Treasury yield increased from 1.22% to 1.31% in August.

Rates Increased Off Recent Lows In August

[caption id="attachment_3692" align="alignnone" width="1920"]

August Market Commentary Exhibit 2—Rates Increased Off Recent Lows In August

Exhibit 2—Rates Increased Off Recent Lows In August[/caption]

Leisure/Hospitality and Education Employment Miss the Mark in August

The third big news surprise was August payroll gains of only 243K, missing expectations by nearly 400K—a huge miss. The Delta variant was once again the culprit as sectors outside of leisure/hospitality and education were largely as expected. But leisure/hospitality and education missed widely as shown in Exhibit 3.

[caption id="attachment_3693" align="alignnone" width="1793"]

August Market Commentary Exhibit 3—Leisure/Hospitality and Education Employment Miss the Mark in August

Exhibit 3—Leisure/Hospitality and Education Employment Miss the Mark in August[/caption]

The equity markets did not take a hiatus in August, climbing the “wall of worry” again to a 3% gain for the S&P 500. Breadth was once again narrow, with large-cap tech leading the way.

Equities Up In August

[caption id="attachment_3694" align="alignnone" width="1921"]

August Market Commentary Exhibit 4—Equities Up In August

Exhibit 4—Equities Up In August[/caption]

As we pointed out last month, the narrowing breadth of the market earnings revisions has made it vulnerable. That said, so far the Fed has managed to thread the needle with its taper message and the upward move in rates has not bothered equities much. We will see if this can continue as fall has historically been a precarious time in the equities markets

Are you interested in making portfolio changes or getting a more in-depth analysis? Contact Stableford today by calling 480.493.2300 or simply request a copy of our Market Blast.

SUBSCRIBE TO OUR COMPLIMENTARY STABLEFORD MARKET BLASTThis market commentary was written and produced by Stableford Capital, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.S&P 500 INDEX: The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Justin Thomas
Justin C. Thomas has worked for over 15 years as a portfolio manager and analyst managing institutional assets for hedge funds and large financial institutions. Career highlights include 8 years as an equity analyst and portfolio manager at PartnerRe Asset Management, a global reinsurance company with $17 billion in assets under management, and prior to that managing a long-short equity portfolio for Citigroup’s proprietary account. Justin has also worked as an analyst at long-short hedge funds and in research for Montgomery Securities (Bank of America Securities). In addition, Justin Thomas gained operational experience while working in finance and operations at E-Stamp, a start-up in Silicon Valley. He began his career working as a CPA at KPMG. Justin has an MBA and Masters in Accounting from Northeastern University and an undergraduate degree in Economics from Tufts University.