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Walking — Week of June 28, 2021

Written by Steve Orr, Chief Investment Officer, and Greg Kalb, Investment Advisor

index wtd ytd 1 year 3 years 5 years index level
S&P 500 Index 2.76 14.78 42.54 18.51 18.23 4,278.95
Dow Jones Industrial Average 3.44 13.56 38.04 14.95 17.29 34,227.87
Russell 2000 Small Cap 4.33 18.70 69.77 13.54 17.17 2,316.76
NASDAQ Composite 2.36 11.80 46.04 25.22 26.30 14,462.14
MSCI Europe, Australasia & Far East 1.51 10.92 34.60 9.55 11.81 2,342.43
MSCI Emerging Markets 1.42 7.75 39.63 11.72 14.35 1,379.59
Barclays U.S. Aggregate Bond Index -0.41 -2.00 -0.51 5.28 3.05 2,344.13
Merrill Lynch Intermediate Municipal -0.12 0.60 3.52 4.80 2.96 319.03

As of market close June 25, 2021. Returns in percent.



June in the second year of a Bull should be a down month. Instead, investors have been treated to a quarter’s worth of consolidation, correction and bounce in less than a month. And a nice bounce it was last week. The NASDAQ and S&P 500 both set multiple new highs. Markets started June with a jog, were jolted by the Fed news everybody knew was coming someday, and should walk quietly this preholiday week. Traders are warming to the idea that inflation will not be too bad, and D.C. may finally spend money on infrastructure. 

On to Food

Price inflation has come in waves: first raw commodities, then manufactured items like cars. Next up, look for food prices to climb in the next few months. Rolling drought conditions around the globe have hit food prices locally. Australia had theirs in 2019—20. Late last year it was Brazil. Lack of rainfall hit their soybean crop, so China has turned to the U.S. They need lots of soybeans to rebuild their hog herds from a bird flu outbreak last year. 

Now it may be our turn. California is a leading producer of fruits and vegetables. In the middle of June over 80% of the western U.S. were in drought conditions. That includes the entire states of Oregon, Utah, Nevada and California. Shipping the crops that are harvested will be more expensive as crude and fuel prices continue to rise. U.S. oil production remains around 11 million barrels per day, below the 13 million per day just before the pandemic. OPEC has exhibited impressive production discipline during the recovery, with Saudi Arabia throttling back production to draw down global inventories. 

Over half of the food produced in the world is consumed in a different country than where it was produced. Adding to drought conditions are shipping woes. Data points and anecdotal evidence point to no improvements in global shipping. The latest problem is a new round of virus outbreaks at the Yantian International Container Terminal in China, which is normally one of the busiest ports in the world. At one point last week over 40 ships were waiting for the government to reopen the port. According to several sources, clogged ports in South China are a bigger problem than the Suez Canal backlog. We can only imagine the angst of retailers waiting on product deliveries for back-to-school or the holiday season. 


We think inflation may have already peaked in some of the commodity areas of the economy. Food and wages are likely the next to experience higher prices. We still believe that headline inflation will hover around 3% for the rest of this year and average around 2.5% in 2022. 

Only the S&P 500 and tech-heavy NASDAQ have broken out of their consolidation ranges. The three Dows, Mid and Small indices all are drifting lower or sideways. This fits the Recovery to Expansion theme: Recovery is usually lead by Value and Small stocks and low-growth expansion by Growth. Our charts tell us that Value and Small have some room left to run, so we are being patient.

This week there are several Fed speakers and light economic news until Friday’s job report. June’s nonfarm payrolls should have grown around 670,000, according to polling by Reuters. We think that is a bit optimistic, as the surveys during the week of the 15th were before states began pulling out of the supplemental unemployment program. Next week we will review the first half of 2021 and what may be in store for round two. Until then, enjoy the blessings of the 4th holiday. 

Steve Orr is the Executive Vice President and Chief Investment Officer for Texas Capital Bank Private Wealth Advisors. He holds a Bachelor of Arts in Economics from The University of Texas at Austin, a Master of Business Administration in Finance from Texas State University, and a Juris Doctor in Securities from St. Mary's University School of Law. Follow him on Twitter here. Greg Kalb is an Investment Advisor at Texas Capital Bank Private Wealth Advisors. He holds a Bachelor of Arts from The University of Texas at Austin.

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