Economic Cycles Are Rarely A Straight Line

Look beyond the headlines to discover the driving forces behind market trends and consider how they impact a credit union’s investment portfolio.

Rarely a straight line that’s a phrase veteran market participants understand all too well, and the activity of the past several weeks has brought forth reminders of the various obstacles that can dampen sentiment in any business cycle.

Since the initial U.S. COVID-19 outbreak in the first quarter of 2020, more than $5 trillion of fiscal aid has been delivered and the Fed’s balance sheet has expanded by more than $4 trillion the combination of which has fueled economic growth rates not seen in several decades. Even with such support, however, confidence can be fickle, and technicals can overwhelm fundamentals.

August Takeaways

  • The recent rally in Treasuries fueled questions regarding the strength of the current recovery, particularly with COVID-19 back atop headlines.
  • Current economic fundamentals remain sound, and consumer and corporate balance sheets are in relatively strong positions looking ahead.

Despite robust consumption data and above-target inflation readings in recent months, long-end Treasury yields ended July down 20-25 basis points, the lowest since early to mid-February. There is no obvious explanation for the bullish curve flattening.

On the technical front, an ongoing deluge of central bank liquidity/intervention and reduced Treasury supply created perfect conditions for a Treasury market rally early in the month, particularly with a notable amount of short positions in place. At the same time, a combination of negative COVID-19 headlines and downside surprises in recent economic data cast, at least some, doubt on the fundamentals of the post-pandemic recovery.

The spread of the delta variant weighed on risk sentiment at times in July, although major equity indices still ended the month in the green the S&P 500, for example, ended at +0.99%. Hospitalization rates have risen to the highest levels since the first quarter, yet the seven-day moving average of new hospital admissions ended July at approximately 35% of the peak from the first week of 2021, according to CDC data. In the United States, 70% of the adult population now has at least one dose of a vaccine; still, it shouldn’t be surprising for a little anxiety to surface in financial markets with memories of 2020 lockdowns still fresh.

This market commentary is provided by ALM First Financial Advisors, LLC, the investment advisor for Trust for Credit Unions. Visit to read about the latest economic data and overall market trends.

August 16, 2021

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