Tuesday, June 1, 2021
Proceed With Caution in the Bond Market
Long-term interest rates have traded sideways recently, but LPL Research argues that high-quality bonds can play a pivotal role in mitigating equity risk. Learn more in this week’s Weekly Market Commentary, available after 1p.m. ET.
U.S. markets open in the green this morning as the S&P 500 Index nears an all-time high
- The major averages are moving in tandem as the S&P 500 Index, Dow Jones Industrial Average, and the Nasdaq Composite are all higher by 0.4% to 0.7%.
- European equities are higher through midday trading with the Euro STOXX 50 up about 1.4%.
- Asian markets finished mostly higher with Hong Kong (Hang Seng) closing up a fraction over 1%.
OECD lifts global growth forecasts
The Organisation for Economic Co-operation and Development (OECD) upgraded its 2021 global growth forecast to 5.8%, up from the 4.2% projected in December 2020.
- The upgrade is not a big surprise, given broad improvement in growth expectations since December 2020.
- The report notes the speed of the vaccine roll-out as a key driver of growth, but also highlights that vaccine distribution remains very uneven across the globe.
- The United States is expected to be a major driver of global growth in 2021 and continue to exhibit above-average growth in 2022, but may lag behind Europe next year, which will be earlier in its recovery.
- Forecasted global growth of 4.4% in 2022 may return global gross domestic product (GDP) to just below its pre-pandemic trajectory.
Oil prices reach highest level since October 2018
A rapid uptick in demand continues to lift oil prices, with West Texas Intermediate (WTI) crude futures rising almost 3% this morning to over $68 / barrel.
- Prices are rising ahead of today’s Organization of the Petroleum Exporting Countries (OPEC) meeting. The group is expected to confirm already scheduled July output increases.
- Market participants will closely watch today’s OPEC meeting for signs of potential output increases down the line.
- Elevated oil prices could have a meaningful impact on broad inflation levels, but only have an indirect impact on core readings, which exclude volatile food and energy prices.
The amount of negative yielding debt is trending lower
- Negative yielding debt became prevalent after the Global Financial Crisis of 2008-09 but the amount surged immediately after the COVID-19 shutdowns.
- At one point there was over $18 trillion of negatively yielding debt but that amount has come down and currently stands at just over $13 trillion.
- Because of low or negative yields in their home countries, many overseas investors are better off investing in the U.S. Treasury market.
- As the amount of negative yielding debt decreases, the amount of overseas interest in the U.S. Treasury market may decrease, which would put upward pressure on yields.
- For more on our thoughts on negative yielding debt, see today’s LPL Research blog.
The S&P 500 bounced back from two straight losing weeks to gain 1.2% last week. The index closed less than 1% from the May 7 all-time highs on Friday, and is extending those gains this morning. Also of note, WTI crude oil is breaking out this morning, trading above $68/bbl. for the first time since October 2018 and potentially setting up prices for a move towards the mid-$70s.
Do You Have Your Mind Right?
On LPL Street View video, LPL Financial Director of Research Marc Zabicki lists three practical steps for mitigating the potential havoc irrational influences can have on investment decisions
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