Monthly Archives: August 2021
Markets Rebound as the Fed Reflects
Market Data as of Week Ending: 8/27/2021 unless noted otherwise
Equities
U.S. stocks rebounded after the prior week’s fall, regaining nearly all the ground lost earlier. The S&P 500 set a record high, closing above the 4,500-point mark for the first time, as the market was supported by FDA vaccination approvals and positive economic growth data. Fed Chairman Jerome Powell confirmed that the central bank expects to begin its tapering program later this year, but to the surprise of many, didn’t set a specific date and warned against rushing to tighten monetary policy. Small-cap companies surged, outperforming their large and mid-cap peers while growth stocks led their value counterparts. The indices were led by economically sensitive sectors such as energy, financials, and materials while traditionally defensive sectors lagged the broader market. Developed foreign stocks in Europe and Asia outpaced U.S. stocks while Emerging Market stocks significantly outperformed both developed foreign and U.S. markets.
Bonds
U.S. Treasury yields moved higher off the comments surrounding the tapering timeline. The 10-year ended the week at 1.31%. Long-term high yield bonds rebounded while long-term government bonds lagged after strong performance back-to-back weeks. Investment grade corporate bonds ended the week with yields near the same level at approximately 2.0% and high yield corporate bonds fell to just below 4.7%.
Macroeconomic Data
The economic data released during the last full week of August provided a mixed outlook. Flash PMI readings for the manufacturing and services sectors in August came in lower than expectations but remained in positive territory. U.S. durable-goods orders fell in July due to weaker demand for planes, despite strong demand in other parts of the economy. The U.S. grew at a faster pace in the spring than previously estimated as the second quarter GDP was revised to an annualized rate of 6.6%. Consumer spending slowed in July as the resurgence of COVID-19 infections weighed on the economy. The U.S. inflation rate hit a 30-year high as the PCE price index rose to 0.4% in July. The eurozone economy appeared to remain in expansion mode in August, with the early headline number for IHS Markit’s Purchasing Managers’ Index coming in at 59.5, slightly lower than the preceding month but remained robust relative to historical levels.
Stocks Move Lower as Taper Talks Intensify
Market Data as of Week Ending: 8/20/2021 unless noted otherwise
Equities
U.S. stock prices pulled back last week as markets experienced their worst week in over two months. Concerns surrounding the Delta variant, Fed tapering, and growing geopolitical issues weighed on investors’ minds. The most recent Fed minutes revealed an increasing likelihood that it may advance its taper timeline, stripping the market of the perceived safety net. Large cap companies outperformed their small and mid cap peers while growth stocks held up better than their value counterparts. The indices were weighed down by economically sensitive sectors such as energy, materials, and financials. Health care, information technology and consumer staples appeared more resilient as they posted gains for the week. Developed foreign stocks in Europe and Asia trailed U.S. stocks while Emerging Market stocks significantly underperformed both developed foreign and U.S. markets.
Bonds
U.S. Treasury yields fell slightly despite the Fed’s taper talk. The 10-year ended the week at 1.26%. Long-term government bonds were the best performing segment for the second week in a row while long-term high yield bonds lagged. Investment grade corporate bonds ended the week with yields near the same level at approximately 2.0% and high yield corporate bonds rose to just below 4.8%.
Macroeconomic Data
It was a relatively light and mixed week on the economic front. Americans reduced their spending in July as retail sales slumped -1.1% for the month, largely reflecting the decline in car-buying. U.S. industrial production rose by 0.9% in July, its fastest pace since March. Home-builder confidence sank to its lowest level in over a year as the NAHB home builder’s confidence index fell five points to 75 in August. Jobless claims fell to a pandemic low of 348,000 in mid-August, showing that companies are still hiring despite the Delta variant. The Philly Fed manufacturing index fell slightly to 19.4 in August, marking the fourth consecutive monthly decline. Heavy flooding and COVID-19 outbreaks across China weighed on the countries retail sales and consumer services, as many monthly economic indicators missed expectations in July.
Stocks Creep Higher as Consumer Sentiment Falls
Market Data as of Week Ending: 8/13/2021 unless noted otherwise
Equities
U.S. stock prices crept higher last week, extending their recent run of small gains amid quiet trading. Investors continue to shrug off the renewed spread of the coronavirus as U.S. economic data has proved resilient to Delta variant concerns. With earnings season nearing the finish line, roughly 83% of the companies have topped revenue forecasts, and approximately 85% have bested earnings estimates. Large cap companies outperformed their small and mid cap peers while value stocks outperformed their growth counterparts. Most sectors advanced, led by materials and consumer staples. Energy stocks retreated as concerns that the spread of COVID-19 infections could weigh on global demand. Information technology and consumer discretionary also lagged driven by the weakness in the semiconductor industry. Developed foreign stocks in Europe and Asia edged out U.S. stocks while Emerging Market stocks underperformed both developed foreign and U.S. markets.
Bonds
U.S. Treasury yields remained relatively unchanged as economic data delivered mixed messages. The 10-year ended the week at 1.28%. Long-term government bonds were the best performing segment while short-term high yield bonds lagged. Investment grade corporate bonds ended the week with yields near the same level at approximately 2.0% and high yield corporate bonds rose to just over 4.7%.
Macroeconomic Data
Economic data was somewhat mixed for the week. The number of job openings rose to a record 10.1 million in June, making it the fourth straight all-time monthly high. The NFIB small-business index fell to 99.7 in July as business owners are losing confidence in the strength of the economy and expect a slowdown in job creation. U.S. consumer prices may be showing signs of moderating as July’s CPI decreased by 0.4% to 0.5%, mostly led by the moderation in used car prices. Producer prices, on the other hand, rose sharply in July for the sixth month in a row. U.S. consumer sentiment took a blow as it fell to 77.9 in August’s early report, its lowest reading since December 2011. Japanese wholesale prices rose by an annualized rate of 5.6% in July, their quickest annual rate in 13 years, mainly due to rising import costs amid surging commodity prices.
Positive Jobs Report Eases Concerns
Market Data as of Week Ending: 8/06/2021 unless noted otherwise
Equities
U.S. stock prices moved higher last week as a better-than-expected July labor report provided some optimism which led most indices to record highs. Stocks have traded in a narrow range lately, with just a single percentage point separating the S&P 500’s high and low points of the past two weeks. With the vast majority of earnings season behind us, as of Friday, 87% of the S&P 500 companies that had reported second-quarter results exceeded analysts’ earnings estimates, according to FactSet. That so-called ‘beat rate’ ranks above the 75% five-year average, and it’s currently the highest rate since FactSet began tracking that data in 2008. Large cap companies narrowly lagged their small cap peers while outperforming mid cap companies, as value mostly outperformed growth. Financials, utilities, and information technology were the best performing sectors while consumer staples, materials and industrials lagged. Developed foreign stocks in Europe and Asia edged out U.S. stocks while Emerging Market stocks outperformed both developed foreign and U.S. markets.
Bonds
U.S. Treasury yields rebounded, breaking a string of five consecutive weekly yield declines, as the 10-year climbed back to 1.30%. Short-term high yield bonds were the best performing segment while long-term corporate bonds lagged. Investment grade corporate bonds ended the week with yields near the same level at approximately 2.0% and high yield corporate bonds rose to just below 4.7%.
Macroeconomic Data
Economic data was overall positive for the week. July’s ISM manufacturing data was one of the few negatives as the index dipped to a six-month low of 59.5% as manufacturers struggled with broad shortages of supplies and labor. U.S. factory orders rose 1.5% in June on stronger demand for airplanes, oil and other industrial goods. The service side of the economy continued its explosive growth in July as the ISM services index surged to 64.1%. The U.S. added 943,000 jobs in July, marking the biggest increase in nearly a year, which brought the unemployment rate to a pandemic low of 5.4%. The BoE, which left its monetary policy and quantitative easing program unchanged at its latest meeting, now expects interest rates to rise from 0.1% to 0.2% in 2022 and to 0.5% in August 2024.
Markets Retreat Amid Growing Concerns
Market Data as of Week Ending: 7/30/2021 unless noted otherwise
Equities
U.S. stock prices retreated last week as the S&P 500 ended lower for the first time in six days. Earnings season continued to exceed expectations as second-quarter profits for companies in the S&P 500 are expected to jump 85%, up from the 63% gain that was forecasted at the end of June. Despite the positive quarterly earnings results, investors appeared more focused on macroeconomic concerns which weighed on stock prices. Among them being the spread of the delta variant of COVID-19. Small and mid-cap companies outperformed their large cap peers while value stocks experienced a positive week and outperformed their growth counterparts. Sector performance was mixed as a few cyclical and sensitive sectors in materials and energy outperformed, while others such as consumer discretionary and communication services lagged. Developed foreign stocks in Europe and Asia outperformed U.S. stocks while Emerging Market stocks underperformed both developed foreign and U.S. markets.
Bonds
U.S. Treasury yields fluctuated during the week, ultimately finishing the week slightly lower at 1.22%. Long-term investment grade government bonds were the best performing segment while short-term high yield corporate bonds lagged. 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 4.6%.
Macroeconomic Data
Economic data continues to point toward stronger growth but not without some growing pains amid a persistent pandemic. Durable goods orders rose 0.8% in June even as manufacturers grappled with shortages. In July, U.S. consumer confidence rose to 129.1, a 16-month high, despite growing concerns surrounding the delta variant. U.S. GDP expanded at a 6.5% annualized rate in the second quarter, slightly better than the 6.3% rate in the first quarter. Consumer spending rose 1% as Americans spent liberally on travel and vacations in June, however some of the increase is the result of the price of goods increasing as inflation ticked up 0.5%. Chinese markets sold off last week as the government’s regulatory crackdown of technology companies proved tougher than initially expected.