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Running with
the Wind


By Morgan Christen
CFA, CFP, CDFA, CEO and CIO


Welcome,

Since our inception, clients have asked us, what is a Spinnaker?

To get technical, it is a large, usually triangular sail flown by a boat as a headsail when running before the wind. In other words, a sail to use when the wind is at your back.
Market Update
Market Update
After a bit of choppy weather a few weeks ago when Chairman Powell admitted the Fed may need to move rates a year sooner, seas have calmed, and the market is flying the spinnaker proudly.

The powerful wind at our back includes strong economic growth, solid earnings, low interest rates and a bond market that is not reacting to the "threats" of inflation.
Inflating the Sail
Inflating the Sail

We are currently in the inflation is "transitory" camp. Meaning, we do not think the high levels will persist. Already we are seeing a pullback in commodities as the chart above illustrates.

There are areas such as wages that will not be transitory; once those move up, they will not move down. There is a bit of push and pull regarding wages, as we saw a record high number of job openings at the end of April, sitting at 9.3 million.
Companies are offering higher wages and additional compensation to lure in employees, but with all the stimulus, many are not taking the bait (as indicated in the job opening numbers).

Additionally, more Americans quit in April than any other month on record. Many quit for higher wages, while some quit for flexible work hours (office v. home). We are not ready for higher prices and companies know that, so they resort to trickery.

Welcome to more shrinkflation, when companies reduce the size or quantity of their products while charging the same price or even more. If you want proof of shrinkflation look HERE.
Stocks
Stocks

Equity markets around the globe posted positive returns in the second quarter.

Looking at broad market indices, developed markets outperformed emerging markets for the quarter.
The "economy opening trade" slowed a bit as value stocks underperformed growth while REITs took the top position for the quarter.

Large cap companies outpaced their smaller counterparts as the rally matured through the quarter. We also watched crypto currencies fall from their highs.
Bonds
Bonds

Yields dropped modestly as most market participants are not concerned with inflation at the present time. After flirting with 2% on the 10-year note, the quarter saw rates drop roughly 28 basis points, from 1.74% to 1.46%. Rates were still higher than they stood a year ago June. As of this printing, interest rates have continued their move downward.
Conclusion

While we enjoy the wind at our back, it could get nautical. As we head into the final quarter of the year, we will see the moratorium on mortgages and rent lifted along with all the unemployment "stimmy." Time to go back to work and fill the nine million open positions. If the Fed talks of tapering (stopping their bond buying), supply chain bottlenecks continue, or the Delta variant shuts things down, the wind will die.

Interest rates in the bonds market continue to move lower, implying the bond market not only believes inflation is transitory, but maybe some of the recent economic growth is transitory.

The Spinnaker Team thanks you for your continued support and looks forward to speaking with you over the next couple of weeks.

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DISCLOSURES: Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. The S&P data is provided by Standard & Poor's Index Services Group. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data © MSCI 2021, all rights reserved. Dow Jones data © 2021 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. S&P data © 2021 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Bloomberg Barclays data provided by Bloomberg. Treasury bills © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). Charts from Dimensional Fund Advisors. Inflation is typically defined as the change in the non-seasonally adjusted, all-items Consumer Price Index (CPI) for all urban consumers. CPI data are available from the US Bureau of Labor Statistics. Stock is the capital raised by a corporation through the issue of shares entitling holders to an ownership interest of the corporation. Treasury securities are negotiable debt issued by the United States Department of the Treasury. They are backed by the government's full faith and credit and are exempt from state and local taxes. The indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results, and there is always the risk that an investor may lose money. Diversification neither assures a profit nor guarantees against loss in a declining market. The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the securities mentioned. The information contained herein, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. Opinions expressed herein are subject to change without notice.