July 2021 Market Commentary

As we close out the first half of the year, equity markets have enjoyed double digits gains fueled by anextraordinary post‐pandemic economic recovery. The…

As we close out the first half of the year, equity markets have enjoyed double digits gains fueled by an
extraordinary post‐pandemic economic recovery. The pace of the recovery has been powered by
stimulus and low interest rates. As a result, demand has outpaced supply in many sectors resulting in
significant price increases and accelerating inflationary numbers.

Inflation, as measured through the Consumer Price Index, was 5.0% for the month of May 2021 (June
CPI values will be released next week). This was the first time we have seen reported figures at 5% or
greater since the middle of 2008. Keep in mind that this measurement is a year‐over‐year
measurement and in May of 2020 we were in the middle of the pandemic shutdown; therefore, the
meaning is highly debated among leading economists. There are two camps of thought: (a) this is the
new norm due to government spending, or (b) inflation will be temporary (the buzz word is transitory).

Our belief is that today’s inflation trend is transitory. Inflation during a post‐recession recovery period is
historically normal and part of nearly all economic cycles. Looking back at the past 20 recessions, we
find evidence to support this; 19 of the last 20 recessions saw temporary inflationary increases during
the recovery period following these recessions.

The recovery period in 2021 should be no different as the global economic shutdowns due to COVID‐19
have impacted many supply chains around the globe causing supply shortages. There has also been an
elevated amount of demand for goods in some areas of the economy at the same time. These forces of
increased demand on a decreased supply of goods have led to significant price appreciation. However,
as supply chains get back to normal, we anticipate inflation to settle back down to the Federal Reserve’s
goal of 2% (average).

What does all this mean for investors… through past economic recoveries and subsequent temporary
inflationary periods, equities continued to perform well for the long‐term investor. Robust demand will
translate into increased sales which ultimately leads to stock price growth. All the while, most
companies that make up our stable of stocks generate a dividend that will continue to produce yield
that offset inflationary trends. This total return (price growth + dividend yield) is the ideal hedge against
inflation, either transitory or more enduring.

Positive economic data continues to come in like the most recent jobs report this past Friday. There
remains no reason to alter our investment strategy as it is working as designed. We anticipate elevated
inflationary numbers through the second half of this year but expect these numbers to settle down a bit
as we migrate into 2022. Therefore, we remain positive on the outlook of our economy, the global
economic recovery, and the equity markets as a whole.

We wish you all a very happy, healthy, and profitable second half of 2021.

Thomas A. Toth, Senior
President & CEO