Markets Rally

Markets bounced back with a vengeance, with a broad rally this past week. Flowing optimism about the global recovery, and a new stimulus lifted most stocks. It was the best week since February, fueled by robust gains among shares of everything from banks to oil producers and all types of manufacturers. As the week opened, markets raced higher on Monday, sending the Dow Jones Industrial Average to its biggest one day climb since March. As the pace slowed over the following days, stocks nevertheless kept moving upwards. It allowed the S&P 500 to notch a new closing high both Thursday and Friday. A grand performance after several weeks of very little upward direction. The moves mark a sharp reversal from just a week ago when the Dow suffered its worst stretch since October after the Federal Reserve signaled it would aim to raise interest rates sooner than previously anticipated. Driving the bounce back, investor’s say, was the ‘data’ signaling a fresh acceleration in the pandemic levels, with spending on goods up nearly 20% from February 2020 and services down about 1%. Add in another stimulus, coming later this year, and you have a recipe for optimism. The S&P 500 climbed 14.21 points or 0.3% to 4280 Friday and rose 2.7% for the week, marking its biggest weekly gain since February. The Dow added 237 points or 0.7% to 34433 and added 3.4% for the week, while the Nasdaq Composite fell 9.32 points, or 0.1% to 14360, however added 2.4% for the week. As the economic data have caught up, areas from consumer spending to housing to the labor market showing sustained improvements, investors have bet that stocks can continue to march higher, no matter what the Fed dishes out, “We are still in a phase where we’re seeing the activity data still accelerate,” said Hani Redha, a fund manager at PineBridge Investments, pointing to surveys showing eurozone business activity is growing at a fastest pace in 15 years. Earlier this week data showed consumer spending in the U.S. in May was well above pre-pandemic levels. The number of people filing for unemployment benefits the prior week continued to hover around half of what it had been at the start of the year. “It is natural that you’ll see very mini wobbles from time to time, Mr. Redha said. “But the fundamental support — that things are improving and the numbers are getting better — is going to dominate that.”

The out of favor fuel… COAL. Coal prices reached a decade high, making the fuel a ‘hot commodity,’ in a year governments are pledging reductions in carbon emissions. A shortfall of natural gas, rebounding electricity usage, and a ‘scant’ rainfall in China has lifted demand for…coal. Supplies have been ‘crimped’ by closed mines, major flooding in Indonesia and Australia, and the Chinese ban on Australian coal. Prices for thermal coal — which power plants burn to boil water into steam, spin turbines and generate electricity — have more than doubled over the past year as a result. Coal exported from Newcastle in Australia, most of which heads to Asia, has risen 56% according to Argus Media. “Both coal — priced benchmarks have outstripped gains in oil, copper and other commodity markets that are benefiting from vaccine-fired bursts of economic activity,” as noted in Barron’s. Prices are expected to stay elevated for several months.

Commodities: Top winners in a “Hot Half.’ Steel, Ethanol lead gains in the first half of the year. Halfway through 2021, commodities, such as steel and ethanol have seen impressive gains. Though others have seen prices drop sharply this month, with lumber nearly erasing its climb this year. Steel leads this year’s rise in major commodities, with steel CRU index futures up by nearly 70% as of June 24, at $1,664 per short ton. “The root cause of this unprecedented price rise is due to the bullwhip effort” of shutting down so much capacity in the early part of the pandemic, says Maria Gobitz, senior research analyst at MetalMiner. Steel prices will likely continue to rise for another quarter, but once demand and production level out, which could take another year, “we should see a more normal market,” Ms. Gobitz suggests. Ethanol has also seen a nearly 63% climb this year. The drop in driving demand last year put pressure on ethanol blending activity. Summer gasoline demand is expected to be robust, nearing 2019 demand levels. Add in that the Biden administration would align the RVO (Renewable Volume Obligation) under statute, combined with improving driving demand, boosted ethanol prices this year, says Brian Milne, editor and product manager at DTN. Looking broadly at the Commodity sector, some volatility, and positive growth may be the best way to describe its outlook.

Bitcoin dives, then revives…The price of Bitcoin briefly crashed below $29,000 for the first time since January, but quickly rebounded. Traders tried to digest the clamp-down on cryptocurrency trading and mining activity in China, as that government is closely monitoring all cryptocurrency transactions. As a major ‘player’ in this sector, the ‘playout’ will be interesting. More to follow…


Peter Williams, Evercore ISI economist. Barron’s “The real issue is the pace of infrastructure spending,” says Mr. Williams. “Don’t look for a quick boost to the economy. Infrastructure spending usually happens slowly because of the drag lack of shovel-ready projects and the amount of time it takes for the benefits of those projects to spread. They will however, provide a boost further out. The timing is such that it will not materially offset drag from the fading of… stimulus in 2022,” Williams writes. “However, it will at the margin help underpin activity from 2023 onwards.”

Greg Swenson, a senior analyst at the Minneapolis research firm, Leuthold Group, IBD “Everyone is trying to feel things out,” Swenson said, which is why he believes the market keeps rotating. The big question, he adds, is when the Fed will start tapering its stimulus. “The biggest risk for the second half of 2021 is inflation. Also a concern for the stock market in the next six months: supply-chain constraints, if they expand to more industries or spread more than expected,” Mr. Swenso said.

Scott Wren, Wells Fargo Senior Global Market Strategist. WSJ “We feel market participants are smart enough to know that companies against year-ago numbers resulting from a very deep recession are not in any way shape or form representative of the norm going forward,” he said. “Over the balance of the year and certainly for the calendar year as a whole, we would still categorize growth to be robust, to put it mildly.”

President Joe Biden, in announcing a bipartisan agreement on infrastructure, “We have a deal.” Quoted in Barron’s