• Rmumy

2nd Quarter 2021 Newsletter

April 1, 2021

Spring is here…or so they say. While it hasn’t felt like spring weather, Major League Baseball kicked off in earnest today! At least one of our team members is VERY excited. (THIS guy) To open with positive news, the United States is WAY ahead of the rest of the developed world in vaccine deployment. As a result, life may look, in many ways, like we remember sooner than we think. What’s changed forever? Time will tell for those of us lucky enough to live and learn through the post-coronavirus timeframe.

2021 kicked off with a strong risk appetite across global markets. The so called “reopening trade” has been in full-effect as underperforming areas of the stock market in 2020 have led to the upside year-to-date. The on-going rotation between various subcomponents of the stock market is a highly positive feature of the current backdrop and is in sharp contrast to the “narrow leadership” that existed until late last year. Not only does this provide a tailwind to stocks generally, but it has also created less known, specific opportunities.

In the 12 or so years following the 2008 global financial crisis, governments around the world lacked policy coordination and were reluctant to engage in fiscal stimulus. This changed dramatically last year. Covid-19 has ushered in a period of unprecedented monetary and fiscal stimulus from governments all over the world. Possible long-term negative repercussions are plenty but for the near to medium term this has created the set-up for a global economic boom. The possibility of higher inflation has also risen substantially.

Longer-duration (maturity) U.S. treasury yields have been rising from historically low levels as the market has repriced interest rates to reflect current consensus expectations of the post-covid world. This has caused recent declines in the bond market but there is good news attached: Interest income is now higher!!!

We have and will continue to take advantage of what is a broadly positive environment for stocks. With that being said, we want to firmly reiterate that our core focus is risk management and long-term results. Our process is designed to focus on possible risk factors in all environments and we will never lapse on this responsibility regardless of how bullish the current environment may seem. Risk management will always remain priority #1.

Going forward we view the following items as key risks that could potentially derail the positive backdrop. These are not predictions but instead possibilities that we observe and measure week in and week out.

  • Long duration interest rates rising too fast in the U.S. relative to other major economies. This has occurred several times over the past few decades and typically results in a tightening of global financial conditions. Of late, U.S. longer duration interest rates have outpaced much of the world to the upside as the U.S. vaccination roll out and growth potential appears vastly superior compared to many areas of the world. If domestic interest rates command an increasing premium compared to other global markets, then money has historically flowed into U.S. treasuries and out of various other riskier global assets. This could make select bonds a great stock diversifier at present.

  • Escalating geopolitical tension between the U.S. and China. Unlike the post global financial crisis period, China has not been the leader in global stimulus. In the wake of Covid-19, the U.S. emerged as the most aggressive large nation in terms of stimulus and overall deficit spending. China appears to be more focused on relatively conservative economic policies and expansion of power in Asia. After effectively taking Hong Kong, China is now firmly focused on Taiwan. The small island nation is at the epicenter of the global semiconductor supply chain which enables the modern world we now live in. Significant economic and societal risk could occur if China starts pushing their way into Taiwan. Digital assets are further complicating traditional global power.* China is aggressively pursuing unilateral relations with countries all over the world as the United States is embarking on direct cash transfers and massive spending that will need to be financed. (aka rising deficit spending) The supply of debt around the world is truly staggering and demand for US government bonds could be changing.

As the saying goes: The more things change, the more they stay the same. Regardless of how historic some events are and have been, data driven opportunities will always present themselves. We remain focused on trying to identify risks and weighing those with possible returns in determining whether playing defense or offense is more appropriate. We truly love what we get to do each day and always welcome the opportunity to discuss our thoughts at any time with each of you.

Ryan A. Mumy, CFP®, AIF® Chief Investment Officer

*This is a very “heavy” topic that we could write pages upon pages about & look forward to talking about it in the future with those interested.

Disclosures: The information provided in this paper is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as investment, legal or tax advice. Capital Investment Advisory Services, LLC makes no warranties with regard to the information or results obtained by third parties and its use and disclaim any liability arising out of or reliance on the information. This information is subject to change and, although based on information that Capital Investment Advisory Services, LLC considers reliable, it is not guaranteed as to accuracy or completeness. Source information is obtained from independent financial data suppliers. For investment related terms definitions, please visit: Past performance is no guarantee of future results. Advisory services through Capital Investment Advisory Services, LLC. Additional information about CIAS and its From ADV Part 2A are available on the SEC’s website at

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