Market Recap


Market Recap


The equity markets were generally robust this week despite building worries about supply chains, energy shortages, and inflation. But for all the talk, long-term bond yields are still below the highs seen back in March (2-year yields have moved more). Granted, this week’s push higher could be the start of a run back towards 1.8%, but we shall see.


One area that did set a post-COIVD record were unemployment claims. They fell another 6K this week to 290,000, as you can see below.



It’s hard to comprehend that initial claims peaked at over 5mm back in April last year. But the labor market still seems broken, just for a different reason now. It seems like we are seeing more and more of these.



Michael Cembalest at J.P. Morgan delved into the worker shortage issue this week (entire article can be found here). He took a stab at summing up where the apparent labor shortage is coming from. He attributes it to the following:


1) Generous unemployment benefits. As of September 1st he estimates that 2.7 million people are receiving more in unemployment benefits than their previous salaries. Combine this with high savings accounts and the motivation to return to work isn’t there.


2) People who took early retirement – 1.5 million.


3) Fewer visas for foreign workers – 700K.


4) Increase in self-employment – 800K


5) Other factors (not working due to infection fears or childcare constraints) – 1.7 million


Add it all up and you get 7.4 million people not working at the start of September.



To put this in context, the total labor force in the U.S. is estimated to be roughly 160 million, so we are talking about 5% of the total.


To quote Michael:


“According to BLS surveys and our estimates, ~2 million people out of the 7.5 million missing workers intend to search for work again at some point, and we do expect increased labor supply by year-end. But it might not be enough to restore the pre-COVID balance of supply and demand in the labor market, which was already pretty tight. As a result, wage pressures and labor shortages may be an endemic feature of the post-COVID US economy and put pressure on the Fed by the middle of next year.”


Tough to Justify Emerging Measures


By pressure he means the Fed could be forced into hiking rates earlier than we currently think. After all, take a look at 10-year breakeven rates below (difference between 10-year bond yields and 10-year TIPS yields – an indication of inflation expectations).



Expectations are back to where they ranged pre-global financial crisis. Not exactly hyper-inflation expectations of course, but also not the environment where you would normally expect the Fed Funds rate to be at 0%.


Along these lines, the odds of two hikes next year is now roughly 90%, up from just 40% in mid-September.



But such a move in rate hike odds comes at a tricky time in the economy. Expectations for third quarter growth have fallen to just 0.5% if the Atlanta Fed number is anything to go by. Could the Fed be hiking rates when growth is so weak?



Time will tell of course. But first they need to cut the level of QE. That seems all but certain when they meet in two weeks.


Charts We Found Interesting


1. Infection rates continue to fall in the U.S.



2. The U.K. case data is going in the wrong direction despite high vaccination rates.



3. Premium is now $5.09 at my local station.



4. What the biggest consensus trade out there today? Higher bond yields has to rank near the top.



5. Corporate borrowing costs adjusted for inflation have never been lower.



6. New Zealand’s real estate prices are off the charts relative to both income and rents.



7. Bicycle path density in Europe. Speaking of which, the Rhone Cycle Route is a bucket list ride (



8. An unexpected twist on our shortage economy.




Have a good weekend.




Published by Gemmer Asset Management LLC The material presented (including all charts, graphs and statistics) is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The material is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objective, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this material is suitable for their particular circumstances and, if appropriate, see professional advice, including tax advice. The price and value of investments referred to in this material and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or prices of, or income derive from, certain investments. No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of Gemmer Asset Management LLC (GAM). Any mutual fund performance presented in this material are used to illustrate opportunities within a diversified portfolio and do not represent the only mutual funds used in actual client portfolios. Any allocation models or statistics in this material are subject to change. GAM may change the funds utilized and/or the percentage weightings due to various circumstances. Please contact GAM, your advisor or financial representative for current inflation on allocation, account minimums and fees. Any major market indexes that are presented are unmanaged indexes or index-based mutual funds commonly used to measure the performance of the US and global stock/bond markets. These indexes have not necessarily been selected to represent an appropriate benchmark for the investment or model portfolio performance, but rather is disclosed to allow for comparison to that of well known, widely recognized indexes. The volatility of all indexes may be materially different from that of client portfolios. This material is presented for informational purposes. We maintain a list of all recommendations made in our allocation models for at least the previous 12 months. If you would like a complete listing of previous and current recommendations, please contact our office.