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Second Quarter Newsletter 2021

                In the last few weeks, we have seen new highs in U.S. Equity markets, growing evidence of the effectiveness of widespread COVID vaccinations, and many businesses and venues in the U.S. reopening. This 4th of July, the country was able to celebrate with parades, fireworks, barbecues, and beach days. Several people we’ve spoken to say they feel especially patriotic this year. We expect many of us came to realize new appreciation for the everyday pleasures and privileges we took for granted pre-COVID.

                We know vigilance is important. New strains of the virus continue, and booster shots may be needed. In ways both good and bad, some aspects of pre-COVID life may never return to “normal.” Still, celebrating this 4th was special, reminding us that Independence is precious, and it’s sustainability requires strength, resiliency, and doses of optimism and caution.

                Investment markets over the 2nd quarter reflected continued strength, as U.S. Equity markets made new highs. As the country began to reopen for business, there was a shift in market leaders. Companies hard hit by the COVID crisis, now entering a more favorable environment with the success of vaccines, began to turn around. With valuations in many companies who benefited during the pandemic at highs, these laggards represented good value. Portfolio managers continue to favor companies which have the financial foundation to weather potential inflationary pressures in the coming months. They highlight Real Estate, especially Commercial, as a group positioned to withstand potential inflation pressure, being able to raise rents as the economy grows.  

                There is still a strong focus on Technology. Sell offs in this group over the past few months have provided some buying opportunities. This sector usually shows relative strength during inflationary times, as the industry’s growth tends to outpace inflation. European markets and Japan are getting more focus as we go into the 2nd half of the year. Euro Zone equities are among the cheapest globally, while the area continues to recover from the pandemic.

                Nuveen Investments looked back at their ‘Midyear Outlook,’ where they described a tunnel that investors would be facing as they began to recover from COVID. They note now the tunnel was shorter than their Investment Committee believed it would be. The U.S., they say, is at or near its peak economic and earnings growth, making inflation more of a concern, and requiring flexibility and caution in stock selection. Overall, Nuveen’s outlook is positive for the 2nd half of 2021, saying, “we expect a solid second half . . . with fewer surprises.”[1]

                Inflation is a concern for both equity and fixed income markets. Franklin Templeton’s website currently features a report by Sonal Desai PHD, the CIO of Franklin Templeton Fixed Income. She noted the increasing tone of “humility” at the June FOMC policy meeting, acknowledging the uncertainty of their outlook, which is “dominated by unexpected shocks and policy moves.” The Fed stance seems still to be that the inflation we are seeing is temporary, and necessary to get us back to full employment.[2]

                Franklin Templeton Fixed Income Advisors think there are signs inflation is not temporary and goes beyond making up for the COVID recession. Ms. Desai points out that of the 21.5 million people reported to have stopped working between February and May of last year, 15.3 joined the Unemployment ranks, while 6.2 million dropped out of the labor force. More than half of those people are no longer seeking employment. While it is hoped many people currently not working in spite of strong demand will return to work once the special benefits of various COVID related support programs expire, the Participation Rate of the “Prime Working Age Group of 18-54” has seen only a 50% recovery from the Pandemic drop as of June, “and has remained stagnant for the past year.”[3]

                The Franklin Templeton Municipal Bonds team sees opportunities in quality municipal bond issuers, where yields are more attractive than corporates and treasuries. As we noted in last quarter’s newsletter, improved cash reserves in many states and municipalities during COVID, and the strong inflow of cash from Washington for Infrastructure spending, favor investment grade munis. Franklin Templeton also sees opportunities in high-yield, saying the average quality of that index has gone up as some low-quality players were washed out during the pandemic, and some “fallen angels,” who lost their investment grade status then, are now part of the high-yield group.

                We will continue to hold sufficient cash positions to take advantage of buying opportunities in the next several months and help insulate our managed portfolios from a significant market correction. We believe a mix of overall optimism and caution for equity markets and continued focus on our risk avoidance investment strategy will help us protect our portfolios from a major sell off, while trying to add to our gains for the year.

                Enjoy these summer months and the increasing opportunities to share with friends and family. Please call or email if you have any questions or would like to come in for a meeting. We are honored to be your investment advisors and grateful for your trust.



The Galarneau Group



[1] Nuveen Investments, “Viewpoints from the Global Investment Committee,” June 28, 2021.

[2] Franklin Templeton, Desai, Sonal, “On My Mind – The Fed’s Last Call For the Punchbowl,” June 18, 2021.

[3]Franklin Templeton, Desai, Sonal, “On My Mind – The Fed’s Last Call For the Punchbowl,” June 18, 2021.

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