Monthly Archives: July 2021
Stock Prices Advanced as Global Growth Accelerates
Market Data as of Week Ending: 7/23/2021 unless noted otherwise
Equities
U.S. stock prices advanced for the week as global growth accelerates, despite concerns of the delta variant of coronavirus. Analyst expectations for S&P 500 earnings growth increased to more than 74% as companies have been reporting better than expected earnings for the second quarter. Large cap companies narrowly lagged their small and mid-cap peers while growth stocks maintained their leadership position relative to value stocks. Communication services, consumer discretionary, and information technology were the best performing sectors. Defensive and cyclical sectors such as utilities, real estate, and energy lagged and were the only sectors in negative territory for the week. Developed foreign stocks in Europe and Asia lagged U.S. stocks while Emerging Market stocks underperformed both developed foreign and U.S. markets.
Bonds
U.S. Treasury yields narrowly declined as the 10-Year note recovered to end the week at 1.28%, following a sharp decline earlier in the week. Long-term investment grade corporate bonds were the best performing segment while all short-term high yield corporate bonds were the only segment in negative territory. Investment grade corporate bonds ended the week with yields near the same level at approximately 2.0% and high yield corporate bonds are slightly higher than 4.0%.
Macroeconomic Data
Economic data continues to point toward stronger growth but the data points toward a slower pace of growth. The IHS Markit Flash U.S. Composite PMI Output Index recorded a 59.7 in July, down from 63.7 in June, but remains near the top of the survey’s 14-year history. The manufacturing sector advanced to a series high of 63.1 while the services sector declined to 59.8. Supply and labor constraints continue to be headwinds as demand exceeds supply in many industries. Housing data was also strong as the median U.S. home priced rose 1.4% to a record high in June. Europe is expected to have growth accelerate in the second half of the year as the IHS Markit Flash Eurozone Composite PMI rose to 60.6 in July, its highest since July 2000. Export data from Japan was also strong as the country reported that year-over-year exports rose by more than 48% in June.
Inflation Data Reduces Investor Sentiment
Market Data as of Week Ending: 7/16/2021 unless noted otherwise
Equities
U.S. stock prices ended the week lower as inflation and growth data appear to have reduced investor sentiment. Analyst expectations for S&P 500 earnings growth increased to 69% as companies begin to report financial results for the second quarter. Large cap companies outperformed their small and mid-cap peers and growth stocks outpaced their value counterparts for the third consecutive week. Defensive sectors such as utilities, consumer staples, and real estate were the best performing sectors and the only sectors to produce gains for the week. Energy was down more than 7%, but remains the top performing sector for the year, followed by declines in the consumer discretionary and materials sectors. Developed foreign stocks in Europe and Asia outperformed U.S. stocks while Emerging Market stocks outperformed both developed foreign and U.S. markets.
Bonds
U.S. Treasury yields declined again as the 10-Year note ended the week at 1.29%, its lowest amount since February. Long-term government bonds were once again the best performing segment while all term structures across high yield corporate bonds lagged. Despite the risk-off environment, investment grade corporate bonds ended the week with yields near the same level at approximately 2.0% and high yield corporate bonds are slightly higher than 4.0%.
Macroeconomic Data
Economic data continues to point toward stronger growth but with more inflation than expected. Both the headline and core (excluding food and energy) Consumer Price Indexes (CPI) advanced 0.9% in June. The headline figure was the largest monthly change since June 2008 and is up 5.4% since the same period last year. Core inflation recorded its largest yearly increase (4.5%) since November 1991. Retail sales increased 0.6% in June which was well above consensus expectations and were supported by strong demand in autos, despite the supply-chain disruptions. Diverging approaches to dealing with a new variant of the virus are emerging in Europe as the UK plans to lift all lockdown measures, while France and Netherlands reimpose restrictions. In Asia, China reported second quarter annualized GDP growth that was near consensus estimates at 7.9%.
S&P 500 Index Ended the Week on Another Record High
Market Data as of Week Ending: 7/9/2021 unless noted otherwise
Equities
U.S. stock prices were mixed as the S&P 500 Index ended the week on another record high, while smaller companies, as represented by the Russell 2000 Index, were down. Analyst expectations for S&P 500 earnings growth increased to 64.0% as companies begin to report financial results for the second quarter. Large cap companies outperformed their small and mid-cap peers and growth stocks outpaced their value counterparts for the second consecutive week. Real estate stocks were the best performing sector followed by gains in consumer discretionary, utilities, and information technology sectors. Energy and communication services lagged and were the only two sectors with losses. Developed foreign stocks in Europe and Asia underperformed U.S. stocks while Emerging Market stocks lagged both developed foreign and U.S. markets.
Bonds
U.S. Treasury yields declined again as the 10-Year note ended the week below 1.40% for the first time since February. All segments of the bond market delivered gains for the week. Long-term government bonds were the best performing segment while short-term high yield corporate bonds lagged. Investment grade corporate bonds ended the week with yields slightly above 2.0% and high yield corporate bonds are yielding approximately 4.0%.
Macroeconomic Data
Economic data continues to point toward growth but were generally weaker than expected. Initial claims for jobless benefits were slightly higher at 373,000 and monthly job openings remain elevated at 9.2 million. The JPM/Markit Global Composite PMI Index declined to 56.6 in June; however, it was still among the highest readings in the past 15 years. In the U.S. both manufacturing and services components fell as goods producers were hindered by supply delays and tight labor market conditions. In Europe, the ECB formally adopted a 2% inflation target and stated that they will use “especially forceful” monetary policy to achieve this goal. In Asia, Tokyo was placed under another coronavirus state of emergency and will not allow spectators to attend the Olympics.
U.S. Treasury Yields Declined to the Lowest Level Since March
Market Data as of Week Ending: 7/2/2021 unless noted otherwise
Equities
U.S. stock prices advanced as the S&P 500 Index ended the week on another record high. Investor sentiment was supported by a combination of mostly positive economic data and a few companies reported better than expected quarterly earnings. Second quarter S&P 500 earnings expectations increased throughout the quarter and analysts are currently forecasting an earnings growth rate of 63.6%. Large cap companies outperformed their small and mid-cap peers and growth stocks outpaced their value counterparts. Sector leadership shifted again this past week as gains were most notable in the information technology, consumer discretionary, and health care sectors. A combination of cyclical and defensive sectors such as energy, financials, utilities, and real estate lagged. Developed foreign stocks in Europe and Asia underperformed U.S. stocks while Emerging Market stocks lagged both developed foreign and U.S. markets.
Bonds
U.S. Treasury yields declined as the 10-Year note ended the week at 1.42%, which is the lowest level since March. All segments of the bond market delivered gains for the week. Long-term government bonds were the best performing segment while short-term government bonds lagged. Investment grade corporate bonds ended the week with yields slightly above 2.0% and high yield corporate bonds are yielding approximately 4.0%.
Macroeconomic Data
Economic data was favorable and headlined by the significant drop in jobless claims data. Initial claims for jobless benefits fell to a new pandemic of 364,000 as the labor market appears to be on the solid ground for a durable recovery. The Conference Board’s index of consumer confidence improved for the fifth consecutive month and reached its highest level since the pandemic in March 2020. Other notable economic data included the ISM Manufacturing PMI data that came in slightly below expectations but still at a strong number of 60.6 and the S&P/Case-Shiller home prices advanced by nearly 15% through the 12 months ended in April, the largest increase since December 2005. Economic data in Europe has been improving as the IHS Markit’s eurozone purchasing managers’ index (PMI) reached its highest level on record at 63.4 in June.