Weekly Market Update 8/14/2021
by Justin Long, on Aug 14, 2021
First let me start off by explaining the gap in updates the past two weeks. The family and I took a road trip up to the Oregon Coast, followed by some time in Seattle to visit with family and friends. It was a nice time to unplug for all of us, especially considering now it is back-to-school time for the kids. Seeing all the green trees driving through Oregon (along with its cooler temperatures) was a welcome change. Here is a shot Laura took from the passenger seat along the way.
How have you spent these last few weeks before school started?
And now on to the recap of this week:
Weekly Market Summary
The past week saw more new records in the stock market with the Dow and S&P 500 inching to fresh highs. The two indices gained a respective 0.9% and 0.7% for the week while the Nasdaq underperformed, shedding 0.1%. Small caps also struggled to keep pace, as the Russell 2000 gave up 1.1%.
U.S. stocks finished another quiet session higher, but at arm's length of the flatline after August’s consumer sentiment unexpectedly fell to the lowest level since 2011. The drop in sentiment was widespread and came amid dampened confidence across all aspects of the economy, as the resurgence of COVID-19, in the form of the Delta variant was cited as a primary culprit. Cyclical/value stocks, which led weekly gains, largely reversed to the downside, while growth-related issues in the Information Technology and Communication Services sectors squeezed out gains. A solid Q2 earnings season continued to head down the home stretch, as Dow member Walt Disney rose in the wake of its stronger-than-expected results and DoorDash overcame early pressure that stemmed from its wider-than-expected loss and some cautious commentary. Treasuries rallied to apply noticeable downside pressure on yields and the U.S. dollar gave back the week's advance. Meanwhile, gold jumped, and crude oil prices dropped. Europe held onto early gains and closed higher, but Asia finished mixed as China and Hong Kong resumed a recent selloff.
News out of Washington
There was some focus on news from Washington during the first half of the week, as the Senate approved a $1.2 trln infrastructure bill and authorized $3.5 trln in additional spending. The bills will now be considered by the House, but reports from Friday pointed to some fresh uncertainty as nine House Democrats said they won't vote for the $3.5 trillion budget resolution until the $1.2 trillion bipartisan infrastructure bill is signed into law.
The renewed misgivings did not stop the major averages from ending the week on a positive note. Ten sectors recorded gains for the week with materials (+2.7%), consumer staples (+2.1%), and financials (+1.9%) leading the way while energy (-0.8%) finished in the red.
Consumer staples received significant support from Tyson Foods (TSN), as the stock jumped nearly 14.0% for the week after reporting better than expected results on Monday morning. Sysco (SYY) gained nearly 7.5% after it too beat quarterly expectations on Tuesday morning.
In other earnings of note, Disney (DIS) touched a three-month high after beating earnings and revenue expectations on Thursday evening.
On the downside, chipmakers underperformed through Thursday with the PHLX Semiconductor Index narrowing its loss for the week to 2.3% during a Friday rebound. The underperformance followed a report from DRAMeXchange about market expectations for memory prices to drop up to 5.0% in Q4.
The August preliminary University of Michigan Consumer Sentiment Index plummeted to 70.2 versus the Bloomberg estimate calling for it to be unchanged at July's 81.2 reading. The index fell to the lowest level since December 2011 and below the April 2020 low of 71.8 as both the current conditions and the expectations components of the index fell sharply. The 1-year inflation forecast dipped to 4.6% from July's 4.7% rate, in line with forecasts, and the 5-10 year inflation forecast moved higher to 3.0% from the prior month's 2.8% level.
The University of Michigan said, "The losses in early August were widespread across income, age, and education subgroups and observed across all regions. Moreover, the losses covered all aspects of the economy, from personal finances to prospects for the economy, including inflation and unemployment. There is little doubt that the pandemic's resurgence due to the Delta variant has been met with a mixture of reason and emotion. Consumers have correctly reasoned that the economy's performance will be diminished over the next several months, but the extraordinary surge in negative economic assessments also reflects an emotional response, mainly from dashed hopes that the pandemic would soon end."
The Import Price Index rose 0.3% month-over-month (m/m) for July, versus the Bloomberg consensus estimate of a 0.6% gain, and compared to June's upwardly-revised 1.1% rise. Versus last year, prices were up by 10.2%, compared to forecasts of a 10.5% increase and June's upwardly-adjusted 11.3% gain.
Federal Reserve in Focus
Treasuries faced some selling pressure during the first half of the week but recovered the bulk of their losses during a Friday rebound that left the 10-yr yield (1.30%) up just one basis point for the week.
The timing of when the Fed will begin to rein in its extremely loose monetary policy amid the backdrop of inflation pressures and signs of recovery in the labor market remains a key area of focus for the markets. The Federal Reserve tapering its bond purchases has unsettled markets in the past, we expect it to be more orderly this time around.
International Economic Focus
European equities finished higher, even as the markets continued to grapple with the festering Delta variant uncertainty regarding the global economic impact, which led to the decisive drop in U.S. consumer sentiment to the lowest since 2011. Real Estate issues led the way as bond yields in the Eurozone and U.K. turned mostly lower. However, gains were likely held in check as Financials pared an early advance amid the reversal in bond yields.
Economic data in the region was light, with the Eurozone trade surplus that widened more than expected in June being the lone major data point released today. The markets have seen growth stocks underperform amid the firming of bond yields as of late, while cyclically-natured sectors have moved higher, likely bolstered by this week's progress in the U.S. on a trillion dollar infrastructure spending package. The euro and British pound gained ground on the U.S. dollar, which noticeably trimmed a recent bounce.
The U.K. FTSE 100 Index and Italy's FTSE MIB Index were up 0.4%, France's CAC-40 Index and Spain's IBEX 35 Index rose 0.2%, and Germany's DAX Index and Switzerland's Swiss Market Index gained 0.3%.
Next week's international economic calendar is also poised to bring some reports that may contend for attention, with releases worth noting including: Australia—employment change. China—retail sales and industrial production. Japan—Q2 GDP, trade balance, core machine orders, and national consumer price inflation statistics. Eurozone—Q2 GDP, construction output, and consumer price inflation. U.K.—employment change, inflation figures, and retail sales.
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
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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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