Weekly Market Update 8/21/2021
by Justin Long, on Aug 22, 2021
I hope everyone had a great week! As I mentioned last week, Monday marked the beginning of the new school year for our two boys. Our house was a type of hectic this week we haven't seen in a year and a half, but all of us are excited and hopeful we will fall back into a groove in the coming weeks.
And now on to the recap of this week:
Weekly Market Summary
Friday -- U.S. equities were able to end Friday's session on a positive note, but the omnipresent uncertainties of the Delta variant, Fed tapering, and geopolitical issues put the major indexes in the red for the week. Information Technology and Communications Services sectors led the way, along with Utilities issues, with all sectors posting gains for the day. Treasuries finished nearly unchanged amid a recent flattening of the yield curve, and the U.S. dollar took a breather from its recent run to highs not seen since last fall. Meanwhile, gold saw a modest increase and crude oil prices added to a recent tumble. The economic calendar was empty today and the equity front was also relatively quiet, though Dow member Johnson & Johnson announced CEO Alex Gorsky will transition out of that role by January, and Ross Stores offered a Q3 warning. Europe finished mostly higher to trim a weekly decline, while markets in Asia lost ground.
Week of 8/21 -- The S&P 500 (-0.6%) and Dow Jones Industrial Average (-1.1%) started the week setting record highs, but the market got caught up in a myriad of concerns that left the major indices lower for the week. The S&P 500 lost 0.6%, the Dow lost 1.1%, and the Nasdaq Composite lost 0.7%. The Russell 2000 was the real loser with a 2.5% decline.
Briefly, there were concerns surrounding
1) supply chain disruptions worsened by the Delta variant,
2) vaccine efficacy,
3) the Fed's taper timeline as the July FOMC minutes rehashed commentary about tapering sooner rather than later,
4) China's regulatory crackdown,
5) Afghanistan after it was overtaken by the Taliban, and
6) the potential for a larger pullback.
Essentially, the concerns were growth-related at a time when the market was trading at record highs and the economic data wasn't all that great. Retail sales for July, total housing starts for July, and the Empire State Manufacturing Survey for August were each weaker than expected. Weekly initial and continuing claims both improved.
At one point during the week, the S&P 500 was down 2.5% from its record high on Monday. The mega-caps were among the first to rebound, though, then a broad-based advance ensued on Friday as investors bought the dip amid some fears of missing out on a rebound rally.
The damage was already done for the cyclical stocks, though. The energy sector (-7.3%) ended the week down 7% as oil prices ($62.25, -6.12, -9.0%) tumbled 9%. The materials (-3.1%), consumer discretionary (-2.2%), financials (-2.3%), and industrials (-2.3%) sectors declined between 2-3%.
Conversely, the health care (+1.8%), utilities (+1.8%), real estate (+0.6%), consumer staples (+0.4%), and information technology (+0.4%) sectors ended the week in the green. Microsoft (MSFT) broke out to record highs with a 3.9% gain.
Longer-dated Treasuries rose in sympathy with growth concerns, leaving the 10-yr yield down four basis points to 1.26%. The CBOE Volatility Index, meanwhile, spiked 20% to 18.56 amid increased hedging interest.
Sectors Struggle with Uncertainty
Although showing some resiliency today, stocks registered a weekly decline as they have had to contend with a host of uncertainties, notably the festering Delta variant, Fed taper timing, and ramped-up geopolitical concerns. As such the markets were a bit defensive this week, with the Health Care, Utilities, Consumer Staples and Real Estate sectors outperforming, while cyclically-natured sectors—Energy, Materials and Industrials—saw some pressure.
Financials also declined this week amid the continued flattening of the Treasury yield curve, while the Consumer Discretionary sector was also among the worst performers amid some mixed responses to results from the heavyweights of the retail sector, which put the finishing touches on a robust earnings season, and this week's softer-than-expected July retail sales report. This appeared to preserve concerns about a slowdown in consumer activity that flared-up last week with the severely disappointing preliminary University of Michigan Consumer Sentiment Index for August, which unexpectedly fell to the lowest level since 2011. The heavily-weighted growth sectors—Information Technology and Communications Services—were mixed on the week with today's gains helping push the former into positive territory, while the latter was lower.
Treasuries in Focus
Treasuries gave up modest early gains and were little changed as the economic calendar was void of any major releases today. The yields on the 2-year note and the 30-year bond were flat at 0.22% and 1.87%, respectively, while the yield on the 10-year note rose 1 basis point to 1.26%. The U.S. dollar was modestly lower, pausing a noticeable weekly advance to approach highs not seen since last fall.
This week saw Treasury yields move lower to foster further flattening of the yield curve and the U.S. dollar continue to gain ground, with the economic calendar offering mixed reads. Also, the minutes from the Fed's July meeting suggested most policymakers thought the beginning of tapering its asset purchases could start sometime in Q4. July retail sales came in below forecasts, housing starts fell more than expected for last month to exacerbate home supply issues, and homebuilder sentiment unexpectedly fell to a thirteen-month low. However, we did see jobless claims continue to moderate, hitting a new pandemic low, the Fed's industrial production and capacity utilization report came in stronger than expected, and the Leading Index grew for a fifth-straight month.
Meanwhile, some softness in the housing market, which had been red hot, has signaled that the pandemic-induced effects may be in the rearview and possibly suggesting some easing ahead.
Next week, with earnings season mostly behind us, the U.S. economic calendar is poised to take back center stage, with preliminary August Manufacturing and Services PMIs from Markit getting the heavy week rolling on Monday. Housing will remain in focus as July existing and new home sales reports will hit the tape. The all-important U.S. consumer will also be on display, courtesy of the releases of July personal income and spending data and the final August University of Michigan Consumer Sentiment Index. Other reports on next week's calendar that could garner some market attention include the first revision (of two) of Q2 GDP, July preliminary durable goods orders and jobless claims for the week ended August 21. However, the headlining event for next week will likely be the Kansas City Fed 2021 Jackson Hole Economic Policy Symposium that will begin in the second half of the week.
The timing of when the Fed will begin to rein in its extremely loose monetary policy amid the backdrop of inflation pressures, signs of recovery in the labor market, and the festering Delta variant, remains a key area of focus for the markets. Also, with policymakers signaling tapering could commence sometime in Q4, the scale and size of the tapering will likely be a source of keen interest of the markets.
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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