This old moniker comes up every year when perma-bears decide to rear their heads after some upward trajectory in the markets. The adage is based on the premise that the six Summer months from May through October typically register lower returns. This is not the case, for the most part. While May, historically, can register flat-to-lower returns, the returns of June-August (going back to 1928) typically offer the second-best performance for the calendar year. Last year, for example, the May-October period saw the S&P 500 march higher by 13.3%. If you were sitting on the sidelines during this period in 2020, you would still be down 9.3% since the beginning of the year instead of up 2.75% for the year by staying invested.
COVID concerns factored into the market struggles last week as cases in India have sky-rocketed higher. However, it's important to remember that vaccination progress is behind in India as only 2% of the population has been vaccinated, compared to 30% of the U.S. Yet, the mortality rate in India due to COVID is one of the lowest in the world (1.2%).
The Economic data was overwhelmingly positive last week. Manufacturing data was strong - more of that to come hopefully this week. The first print of Q1 GDP was much stronger than Q4 and better than expected. Personal Income, Consumer Spending, and Consumer Sentiment were all improved month-over-month. The Fed appears not to be concerned over Inflation until we reach pre-pandemic levels of employment.
There are some concerns in the economy as we recover from the pandemic. Demand is heating up and small businesses are struggling to keep up. Job Openings for small businesses are through the roof and filling those vacancies is becoming a problem. According to a recent survey, one in four restaurant operators listed "recruitment" as their top concern, ranking it above COVID. Restaurants and small businesses have had a tough time navigating inventory and labor during the closing-opening-closing-opening confusion of the pandemic. Supply chains are now hampered by pent-up demand, labor shortages, and logistics constraints. There are still more than 6 million people receiving COVID benefits, keeping many of these people on the sidelines and out of the labor pool. Office Occupancy is still extremely low, which will eventually put a strain on long-term corporate leases. These issues are short-term in our opinion, with the exception of office occupancy. As long as the economic data continues to improve, these challenges will be met.
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