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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.

 

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