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Market Commentary 08-13-2021

Kris Venezia, Market Analyst

​I have done this in the past and I will do it again. I want to discuss consumer spending trends. A really important part of this recovery and how we invest depends on what people decide to do with their money.

While the economic recovery is progressing, spending has not met investors expectations in many areas. According to JP Morgan Chase, which monitors and puts out data on spending tracking their cards, airline spending is still down more than 30% from pre-Covid times. Restaurant spending is still down about 5% from pre-Covid times. There is a similar story with hotel bookings as they are still not at pre-Covid levels.

The data also shows us that airline spending has fallen in the last month. Southwest Airlines also confirmed this, executives at the company announced that travel bookings had dropped. They said customers are being more cautious booking flights and cancellations have ticked up. When we monitor restaurants, since the beginning of the year, the recovery was going at a rapid pace. The restaurant recovery has now stalled, with spending staying flat over the last month.

Going into the summer, investors were expecting a huge recovery in restaurants and airlines and hotels and casinos. The spending has not met investors expectations. It's why if you look at stocks in those areas, you'll notice, on average, probably a 10% decline from their high's this year.

The one area where spending is way up is clothing. Fashion brands have had an amazing summer, with luxury companies like Capri Holdings, which owns Kenneth Cole, reporting great quarters. Levi's has also enjoyed a good several months, probably helped by the fact that waist sizes may have shifted since last March.

The last item which is a little frustrating is how data shows us money still isn't moving around in general like what would be expected. We use data called velocity of money to examine that. The Fed of St. Louis has data out showing that the velocity of money is still extremely low. It has stayed low since last March. The money supply right now is very high thanks to government spending and the Fed. Yet, despite all the money out there, it's not moving. The data tells us that people are keeping money parked in their bank accounts and saving money, rather than going out to spend it on vacations or on goods.

Daryl Eckman, President

China has been in the news a lot lately. We have heard how China has been treating Hong Kong, and the neighboring countries around there in that region are on alert about the behavior from China.

The current U.S. administration is starting to introduce funds to try and get semiconductor makers to move their production to the U.S. We know that a lot of production of semi-chips are done in parts of Asia. The Biden administration is hoping to entice companies, with money, to start making these products in America.

We had been thinking about putting more money towards emerging markets, like China, but we have been holding back on that because we have not felt all that comfortable in the direction China is moving. We have been looking outside of the U.S. more with investing. We speak with people at Capital Group and others and we have found they are less positive on China than they were in the past.

Clint Carpenter, Director of Operations

It's a little disappointing to see China crackdown like they have. They have large tech companies like Alibaba and Tencent which have products that are very widely used all over the world.

It's been interesting to see China attack this industry with how successful it has been. It's hard for us to get good information out of China because they keep their cards so close to their chest.

The Chinese economy is so large and there may be opportunities there, so we are not abandoning ever investing in China, but we are paying close attention to what leaders there are doing.

We will always go to where the opportunities are, so if those opportunities are not in China, we have no problem shifting funds elsewhere.

Kris Venezia

The concern that I have as China's policy develops is what happens to U.S. companies operating in China.

Nike, Apple and Starbucks all are manufacturing or selling products in China. The country has a huge economy that many American companies want to tap into.

It could be a much larger problem for the markets and global economy if U.S. companies start getting burned by Chinese policies.

There is nothing imminent on that front, but we will continue to monitor the behavior out of China and adapt if we need to.

Clint Carpenter

In previous market commentaries, I mentioned that we’d touch more on the details of some of the spending proposals coming up in the legislature as they became more concrete.

This week, the Senate passed a $1 trillion infrastructure bill. It had bipartisan support with only 30 no votes. The bill authorizes funds for the rebuilding of freeways, roads and bridges, the modernization of public works systems and public transit networks, investments in passenger and freight rail, electric vehicle charging stations, and sizable outlays for investment in internet access and modernizing the electric grid. A majority of the money will come from unspent COVID-19 relief aid, including unemployment insurance aid that some states halted and returned to the federal government. The House will vote on the bill next, but Speaker Pelosi has said they’ll only take it up once the Senate has passed the other more partisan spending plan.

This other spending bill will come in the form of a budget resolution, all but ensuring a party-line vote. The budget plan is a massive and ambitious investment in social programs and climate policy, coming in at a price tag of $3.5 trillion dollars. It includes spending on paid leave, child care, extensions of certain tax credits, expansion of Medicare benefits to include dental vision and hearing, as well as reduce the Medicare eligibility age, extension of Affordable Care Act subsidies, and several incentives geared toward environment sustainability.

The proposal would not raise the debt ceiling, instead the Democrats say they’ll pay for it through corporate and individual tax reform, including increased IRS enforcement of existing tax law.

This bill is tricky because it will require every Democrat to vote yes, and some of the more moderate Democrats, like Joe Manchin and Krysten Sinema, have already signaled their disapproval of the size. Senate Democrats have about a month to get the work done before the house returns, ready to vote.


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