The S&P 500 tracking ETF SPY rose 1.3% in the month of June. Analysis of the FRED economic data show that the economy is still in Phase 2 (late growth cycle), which is good for equities.
The ETF Portfolio technical investing algorithm calls for a July 1 investment in International Bonds (EDV), Emerging Market Bonds (EMB), and long term Treasury bonds (VCLT). This is consistent with increase in the flow of monies into bond funds, which indicates that people are hedging these equity ETF bets. There is too much money chasing too little sources of return, so even low paying bonds are getting play here.
The ETF Portfolio technical investing algorithm calls for a July 1 sale of GLD (Gold) after holding only one month for a net loss of 6.77%. Inflation fears which heat up interest in gold have been moderated by the stubborn US unemployment rate, which is still above the Fed’s target.
Taking the long view, a few macro factors combine to suggest inflation in the near future:’
- Labor cost inflation due to uneven return to work of those remaining outside the workforce
- Continued government assistance or promise of assistance beyond what was available before COVID hit
- Shortages in housing, computer chips, and labor
- Immigration policy that limits expansion of low-skilled workforce willing to work in low-paying jobs
While the ETF Retirement portfolio will be adjusted to purchase the above Bond funds and sell Gold so as to be consistent with the technical signals, on a personal level I am not increasing my purchase of long term bond instruments nor am I selling Gold. I believe that the growth in those long term bond fund values since mid-May is a head fake. There is 6x the money going into equity funds as bond funds at present, and that is for a reason. We appear to be in Phase 2 of a traditional economic cycle. Not sure it is topping out, but there is certainly some evidence of bubbles in the housing and auto markets. I am going to stay in equities, add proportionally to my equity and short term bond positions, and see what the summer brings.