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BCA Weekly Commentary 7/16/21: Inflation Erodes Demand


SUMMARY. This week, as per University of Michigan Consumer Sentiment Survey for June, there emerged clear signs that the flood of fiscal money not only resulted in higher inflation as the economy reopened, but is now negatively impacting future buying behavior tied to higher prices. Ultimately, as we have been saying in prior posts, demand may slow and well as growth and most likely inflation. This is why we saw another week of falling long-term interest rates as per 10 year Treasury bond. The moral of the story gov't maybe handcuffed to boost short term growth until inflation subsides or growth slows dramatically and even then the use of either fiscal or monetary policy may have growth consequences. In sum, we maybe boxed in for a period of sustained slow growth potentially with elevated inflation.


INVESTMENT IMPACT. Over the last few weeks we have seen small growth capitalization stocks go under a liquidation phase & correct significantly. That began to spread through rest of markets late in week. We added hedges to our model portfolios to help buffer downside to markets. The majority of the model portfolios continue to be weighted in healthcare & utilities and weighed to small capitalization stocks that we believe have lower correlated fundamentals with the economy and have favorable risk/reward & valuations (not surprising given that's what investors have been selling). Cash levels are at near normal levels, as we deployed it on hedges and existing names that have been sold off this week. We remind clients that small capitalization stocks usually are more volatile and are subject to illiquidity where by prices may swing day to day by supply & demand of buyers/sellers vs fundamentals. Especially true when investors are liquidating to raise cash (we saw this in late winter of 2020 tied to covid-19 opening the door to many investment opportunities).


Our model portfolio performance has been updated on our website as of 6/30/21.


For more insights see our website and disclosures found there at BCA. The thoughts contained in this newsletters are intended lend insights into BCAs current & future thinking on changes to BCA model portfolios. They are not intended to be recommendations and should not be taken as such. As always contact us for further explanation of how these events can affect your finances. To unsubscribe from our newsletters & website please email us with "unsubscribe" in the subject.

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