June was a positive month for equities seeing moderate gains in the SP 500 (+2.2% ) and emerging markets (+1.6% ) while the Nasdaq rose by +6.3 %. Suffice to say we are at all time highs as the U.S. index rides on a wave of positive post-covid recovery and increasing inflation expectations. We have seen an almost linear progression in stock price since March of 2020.
It is important to keep in mind policy. In 2020, the US Federal Reserve announced a major shift towards inflation management. Under this new policy, called Flexible Average Inflation Targeting or FAIT, the Fed now targets a 2% inflation on average over time as opposed to fighting inflation as it appears. This allows for inflation to overshoot the 2% target before policy is adjusted.
This of course could lead in runaway inflation that the Fed may not be able to control. Currently the accepted view is that deflationary forces are large enough to counterbalance inflation pressures. The bottom line is that if the Fed wants slightly higher inflation we should expect it.
The S&P 500 Daily chart (above)
For June, the data says otherwise. Long term treasury ETF (TLT) saw a significant increase (+4.4%) meaning yields fell while gold, an inflation friendly hedge had a correction at – 7.2%.
June was a mediocre month for our strategies with the leveraged strategies being the ones that suffered due to exposure to gold.
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The Logical-Invest team.