The 2nd quarter market performance reflected a mixed bag of investor concerns.  Most US states reopened as covid vaccinations were made available across all age groups.  While the push was still on to vaccinate more of the US population a far fewer number of vaccinations were being administered everywhere else in the world.  The appearance of covid variants in Asia spread rapidly and now threaten shutdowns in parts of the US.  Fear of another economic shutdown became a 2nd quarter concern.  The debate began on possible efforts to force vaccinations on more of the US public. 

The 2nd quarter began with a jump in the benchmark 10-year US treasury.  That was thought to reflect a fear the Federal Reserve would wait too long to begin bumping up interest rates.  Inflation became evident in the price of energy, food, used cars and building materials.  Confidence in the FED’s ability to guess right on when to raise rates was dampened by the track record of always being wrong.  The FED chair began the year by expressing his surprise that inflation was heating so rapidly.  The FED’s explanation, inflation was transitory, brought on by the reopening of the world economy, and would taper as supply chains went back on-line.  That remains to be seen.

The concern was that once prices went up, they would be slow to come down.  Labor prices have skyrocketed as the service industry struggled to find workers.  Many former workers remained at home living off the flow of money from the federal government.  Democrats pushed to maintain that flow of money.  Shortages from bacon to bullets can be blamed on the failure of former workers to return to the job. 

As the quarter came to an end the 10-year treasury bond shifted direction as yields suddenly began to move lower.  Yields move lower as bond prices move up.  There are several possible reasons why that happened.  The FED begin to have conversations about starting conversations on tapering its purchase of US government bonds and increasing interest rates in 2023, a year earlier than previously targeted.  Bond buyers may be indicating concern the FED will begin tightening too soon resulting in an economic slowdown coupled with inflation.  Democrats continue to push for US deficit government spending, fueling more inflation fears.

There are other explanations for the lower bond interest rates.  While the US gives every indication of moving on past the pandemic, the rest of the world, including Europe, is showing signs of economic slowdown as covid infections increase.  Bond buyers see the US as a safe harbor.  Bond rates in parts of Europe and Asia remained negative as those economies remained bogged down.

Questions remain as to whether Democrats will be able to push through their plans for massive spending and huge tax increases.  As the 2022 election seasons draws nearer chances of getting those tax and spend plans in place appear to wane.  One vote will determine the debate.