Weekly Market Update 7/17/2021
by Justin Long, on Jul 17, 2021
Our week in Big Bear was amazing, to say the least. It was refreshing to get out of the hot temperatures and enjoy some time in nature. It was just what the family and I needed. As a first time for all of us, we decided to take a Jeep Rock Crawling tour in the mountains on our last day. It was a high-point in our trip. Our tour guide got out to film, so I've included a peek of the adventure below!
And now on to the recap of this week:
Weekly Market Summary
Tough week for stocks as Treasury market throws off investors
The week started with the S&P 500 (-1.0%), Nasdaq Composite (-1.9%), and Dow Jones Industrial Average (-0.5%) closing at record highs, but that's about as good as it got. They each finished lower as the market turned defensive while the real loser was the Russell 2000 (-5.1%) with a 5% decline.
There wasn't one specific event to blame for the losses, but the Treasury market continued to behave as if inflation rates and growth rates could be peaking. That's because the 10-yr yield decreased six basis points to 1.30%, even as consumer and producer prices ran hotter than expected in June and retail sales data for June beat expectations.
On a year-over-year basis, total CPI was up 5.4% and producer prices for final demand were up 7.3%. Total retail sales increased 0.6% m/m in June (Briefing.com consensus -0.6%).
The defensive bias was further underscored by the solid gains from the S&P 500 utilities (+2.6%), consumer staples (+1.3%), and real estate (+0.7%) sectors. Apple (AAPL) did well, too, rising 0.9% for the week afterBloombergreported the company plans to increase production for its next-gen iPhone by 20% this year.
Conversely, energy sector was beat up with a 7.7% decline, outpacing the decline in oil prices ($71.76/bbl, -2.80, -3.8%). The consumer discretionary (-2.6%), materials (-2.4%), and financials (-1.6%) sectors also underperformed with losses over 1.5%.
As of Friday, 85% 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. Results were in from 8% of S&P 500 companies as of Friday, with many of the early reports coming in from major banks.
There were a lot of EPS beats this week, most predominately out of the financials sector, but that didn't matter so much for the broader market, let alone the banks given the lower Treasury yields. Taiwan Semi (TSM), however, missed EPS estimates, which really weighed on the Philadelphia Semiconductor Index (-4.1%).
Inflation Spike Persists
A monthly measure of U.S. consumer prices rose at the fastest pace since 2008. June’s Consumer Price Index rose 5.4% from the same period a year earlier, surprising many economists who had expected the recent spike in inflation to moderate.
The world’s second-largest economy has recently been recovering from the pandemic at a much slower pace than it had at the start of the year. China recorded a 7.9% annual growth rate in this year’s second quarter, down from a record 18.3% rate in the first quarter. China’s government has set a full-year growth target of more than 6.0%.
In the wake of the latest monthly report showing rising inflation, Federal Reserve Chairman Jerome Powell told a congressional panel that the central bank wouldn’t hesitate to lift interest rates to try to control rising prices. However, Powell repeatedly emphasized that he still expects price pressures to ease later this year.
Separately, Fed Chair Powell testified before Congress for his semiannual report on monetary policy. The key takeaway from that hearing was that the Fed isn't ready to dial back its accommodative policy since Mr. Powell said, "reaching the standard of 'substantial further progress' is still a ways off."
All in all, it seemed like the stock market cooled off in part because of the confounding price action in the Treasury market. We'll see what happens next week when a host of non-financial companies report earnings.
As always, it is my pleasure to bring you this weekly update. If this or anything else is causing you pause or you would like further details, please feel free to reach out to me and we can schedule some time to chat.
Justin J. Long CFP®
Diazo Wealth Group
Upcoming Economic Calendar
Source: 1. FactSet
Source: Week in perspective provided by Briefing.com. Briefing.com offers live market analysis on their web site www.Briefing.com.
The data provided is for informational purposes only and is not an endorsement of any security, mutual fund, sector, or index. The information contained here is not guaranteed as to accuracy or completeness. All economic and performance information is historical and does not guarantee future results.
The Dow Jones Industrial Average is a price-weighted index comprising 30 widely traded blue chip U.S. common stocks. The NASDAQ Composite Index is a market-value-weighted index of all common stocks listed on the NASDAQ stock exchange. The S&P 500 Index tracks the performance of 500 of the largest publicly traded companies in the United States. The MSCI Europe, Australasia, and Far East (EAFE) Index tracks the performance of publicly traded large- and mid-cap stocks of companies in those regions. The Cboe Volatility Index (VIX) shows the market’s expectation of 30-day volatility and is constructed using the implied volatilities of a wide range of S&P 500 Index options. Weekly and year-to-date figures for the VIX show percentage changes, not investment returns. The Russell 2000 Index tracks the performance of approximately 2,000 publicly traded small-cap companies in the United States. It is not possible to invest directly in an index.
The Treasury yield curve is derived from available U.S. Treasury securities trading in the market and is provided directly by the U.S. Federal Reserve. The spread measures the difference in yield between two government securities. A normal (positive) yield curve occurs when longer-term rates are higher than shorter-term rates. The opposite holds true for an inverted yield curve. Year-to-date changes in U.S. Treasury bond yields are shown in basis points (bps). One hundred basis points equals one percent.
Oil prices are represented by West Texas Intermediate (WTI) crude oil.
The G20 countries comprise a mix of the world’s largest advanced and emerging economies, representing about two-thirds of the world’s population, 85% of global gross domestic product, and over 75% of global trade.
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