INSIGHTS FROM FIRST FOUNDATION

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The Week Ahead – Car Shopping

Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.

Short-term views versus long-term views. Good news versus bad news. We often get asked the age old question, “when will the next recession begin?” Well, the truest answer is always, “sometime after the last one.” What we do know is that the economy is cyclical, correcting itself both when it has bottomed out and when it overheats (through actions of consumers, investors, governments, and central banks). Today’s market environment is even more opaque than ever. Domestic equity markets have continued to grind higher, returning almost 12% year-to-date. That’s counting last week’s move downward as the S&P 500 index saw its first -2% day since late February after the latest CPI (inflation) reading came in higher than expected. Yes, the CPI reading of +4.2% is a big number (the highest number since September 2008) and well above the Fed’s target of 2%. However, the +4.2% CPI reading is over the period of the last 12 months. Remember April 2020? Probably the most uncertain month through the entire global pandemic which was reflected in both the equity and fixed income markets prices. Probably the most jarring data point from last April was the fact the oil prices went negative for the first time ever. In fact, April 2020’s CPI reading was -0.8%, which was the largest monthly decline going back to 1957.

So what’s driving the inflation number? Autos. I just experienced this first hand after visiting a few dealerships this past weekend. Low inventory for new vehicles (get your deposit in and plan on waiting for a fall delivery!) and if you want to drive off the lot, it’ll most likely be in a used vehicle. Used vehicle prices rose 10% in April and 21% on a year-over-year basis. Airline fares are 9.6% higher than a year ago (so who was flying in April 2020?). The economy and the consumer have gone through a volatile last twelve months; changing the way we work, the way we consume, and what we consume. The supply chain will eventually get back on track over time and normalize. While last week’s volatility was driven primarily on a higher inflation reading, which in turn would force the Fed to raise interest faster than anticipated, Fed Funds rate expectations by market participants didn’t rise. Peeling back the data continues to show that inflation will be transitory, airlines will once again fill the middle seat to maximize their aircraft loads while bringing back more planes to their active fleet. TSA 7-day trailing checkpoint flows are still about 40% below from pre-Covid levels. Investors will be watching for September’s data more closely as the near-term noise gets washed out.

In the week ahead all eyes will be on the latest FOMC minutes to see if any details will reveal when the Fed plans on tapering down their monthly $120 billion of asset purchases, and when they expect to raise rates. It wouldn’t surprise us if inflation readings over the next few months continue to surprise on the upside as supply chains for different sectors move at different paces.

Data deck for May 15–May 21

Date

Indicator

Period

May 17

Empire Manufacturing

May

May 17

NAHB Housing Market Index

May

May 18

Housing Starts

April

May 18

MBA Mortgage Applications

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May 19

FOMC Minutes

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May 20

Initial Jobless Claims

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May 20

Philadelphia Fed Manufacturing

May

May 20

Leading Indicators

April

May 21

IHS-Market Manufacturing PMI

May

May 21

HIS-Market Services PMI

May

May 21

Existing Home Sales

April

IMPORTANT DISCLOSURE INFORMATION    

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by First Foundation Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from First Foundation Advisors. Please remember that if you are a First Foundation client, it remains your responsibility to advise First Foundation, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. First Foundation Advisors is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the First Foundation Advisors’ current written disclosure statement discussing our advisory services and fees is available for review upon request, or at firstfoundationinc.com.  Please Note: First Foundation Advisors does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to First Foundation Advisors’ web site or incorporated herein, and takes no responsibility therefore. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Andrew Chan, CAIA, Co-Chief Investment Officer
About the Author
Andrew Chan, CAIA, Co-Chief Investment Officer
Mr. Chan co-leads the strategic investment committee and is responsible for overseeing First Foundation Advisor’s investment solutions platform which includes conducting investment manager research for both traditional and alternative investments as well as asset allocation guidance for portfolio construction. As a member of the investment committee, he provides market commentary and investment insights to clients. Additionally, Mr. Chan serves as a senior executive on the business strategy committee providing guidance on firm wide initiatives. With over 15 years of wealth management experience, Mr. Chan has played key roles across various aspects of investment and wealth management. Prior to joining First Foundation Advisors, Mr. Chan was most recently a portfolio manager at U.S. Trust where, in addition to his daily responsibilities, he served on numerous national committees including the investment manager committee, the portfolio model committee, and the strategic technology committee. He also served on the in-house strategic consultant committee reporting directly to the President of U.S. Trust. Mr. Chan is a graduate of the Wharton School Executive Program on Investment Management and holds a Bachelor of Arts degree in Business Administration from the University of California, Riverside. He is a Chartered Alternative Investment Analyst (CAIA). Mr. Chan has previously served as an exam working group member and as an exam grader for CAIA. A member of the CAIA SoCal Executive Board since 2015, Mr. Chan has served as executive chapter head since 2017. Read more