The USS Teflon Market

By David Nelson, CFA
USS Teflon Market sailed past the FOMC iceberg I called out in last week’s post. On the heels of a Fed decision week that pushed June into negative territory stocks reversed course putting in their best week since March. The reflation trade bounced hard waving off concerns of a hawkish tilt in the latest FOMC policy statement. If investors were concerned, they sure didn’t show it. Equity ETF inflows for the week were very strong pushing both the S&P 500 and NASDAQ to fresh highs. 

FactSet Charts
All sectors put in a positive week but leading the charge were Energy (XLE) and Financials (XLF) still the two best performing sectors this year. Continued assurances that rising inflation from the pumps to the grocery is transitory helped calm the fears from a week earlier.

Trade Desk Conversations
Analysts and portfolio managers are all running what if inflation scenarios. Rising inflation can help drive revenue but it becomes an increasing challenge for profit margins and ultimately the bottom line. Add the inevitable multiple compression that often comes with higher rates it’s not surprising even bulls are a bit surprised by the market’s continued resilience.
The close of the quarter is just a few days away. Investors will gear up for another earning’s parade that for the moment has the same setup as last quarter. Estimates continue to move higher weekly with the 2021 consensus now sitting at $193 up another $5 since May. Analysts have been behind the curve all year forced to adjust earning’s models as the recovery continues to ramp higher.
Economic Calendar for the Week

Home Prices kick off the week, but all eyes will be looking to Friday’s employment report. Everywhere you turn help wanted ads are on full display. The debate surrounding the economic and political factors driving high quits rates rages on. Eight states including Alabama, Idaho, Indiana, Nebraska, New Hampshire, North Dakota, West Virginia and Wyoming all opted out of Federal unemployment benefits hoping to replenish the talent needed by local employers. Factories and retailers are still struggling to find workers forcing wages higher. 

Quits Rate

This of course plays right back into the inflation’s expectations debate. Rising energy and commodity prices might be transitory but wages are sticky ultimately forcing the Fed’s hand. 

*At the time of this post some funds managed by David were long XLE