Last Week’s Equity Surge, Bond Vulnerability, and a Bleak Outlook for the 60/40 Portfolio
May 10, 2021 | FIRESIDE CHARTS
We saw new all-time highs permeate the equity markets last week with all market caps and most sectors participating in the rally. As noted in Friday’s Fireside Charts, Commodities climbed as well and it appears Gold is ready to join in. Stay tuned for how Crude Oil and Gas fare this week after Friday’s pipeline hack halted operations of the largest oil-products pipeline in the U.S. Despite the optimism, looking at equity market leadership regimes over the last few decades leaves one wondering if the U.S. will continue its dominance. Pair this with the vulnerability of bonds to rising rates, and inflation concerns, a traditional 60/40 portfolio is bound to disappoint over the coming decade. We will be eyeing the market’s response to more key earnings announcements later this week—we’ve already seen some movement this afternoon as certain vaccine makers and hotels beat estimates and provided further insight on what’s ahead of us.
1. The Dow, S&P 500 and S&P 400 all hit new highs last week. Not to be “picky”, but the steep slope of the advance has us questioning the longevity of this rally. Too far, too fast often has consequences…
Source: The Chart Store, from 5/10/21
2. The recent rally has been broad, with 9 of 11 Sectors hitting new highs and all market caps participating:
Source: The Chart Store, from 5/10/21
3. Commodities, risk assets in high demand, are skyrocketing. Even gold looks to want to rejoin the “party”.
Source: The Chart Store, from 5/10/21
4. Yes, trends tend to persist, but which equity market will lead during the next ten years?
Source: JP Morgan, from 5/10/21
5. How vulnerable are bonds to rising rates?
Source: JP Morgan, from 5/10/21
6. If you are depending on your 60/40 portfolio to meet your income needs, you are set up for disappointment. This assumes bond and equity yields don’t rise for the wrong reasons…
Source: JP Morgan, from 5/10/21
7. The best use of free cash flows still appears to be share buybacks:
Source: The Daily Shot, from 5/10/21
8. This is what the Fed has been citing. Inflation has been so low for so long, they feel a little “extra” will play make-up. Careful, once the inflation genie is out of the bottle, it is hard to put back!
Source: The Daily Shot, from 5/10/21
9. With Covid keeping a lid on certain U.S. services and supply shortages crimping some manufacturing industries, our trade deficit continues to set new records:
Source: The Chart Store, from 5/10/21
10. Is the Pandemic much worse than reported?
Source: The Daily Shot, from 5/10/21
Disclosure: The charts and infographics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are they a recommendation to take any action. Individual securities mentioned may be held in client accounts. Past performance is no guarantee of future results.