Weekly Market Update 8/28/2021
by Justin Long, on Aug 28, 2021
This week saw record temperatures in Las Vegas (again!) so I hope you are all staying nice and cool. Of course, the most notable thing this week was the celebration of National Dog Day so in its honor, this week's intro is dedicated to Las Vegas' very own Alona, who was crowned TSA's cutest canine.
Alona is a four-year-old Golden Retriever working at McCarran International Airport, and was one of four finalists for the award. Currently, the TSA has trained more than 1,000 canine teams working at airports and mass transit facilities across the country.
And now on to the recap of this week:
Weekly Market Summary
Week in Review: Bull market bounces back to record highs, Fed Chair Powell pleases market
The S&P 500 (+1.5%) and Nasdaq Composite (+2.8%) set record highs every day this week, except for Thursday, accentuating the bull market's persistent ability to overlook concerns and attract buying interest. Both ended the week higher by 1.5% and 2.8%, respectively, following Fed Chair Powell's Jackson Hole speech on Friday.
The Dow Jones Industrial Average underperformed on a relative basis with a 1.0% gain, while the Russell 2000 raced ahead with a 5.1% gain amid a strong bounce in energy stocks.
From a sector perspective, the S&P 500 energy sector rebounded 7.3% (cutting its monthly decline to 1.0%) while five other sectors rose more than 2.0%. The defensive-oriented utilities (-2.1%), consumer staples (-1.4%), health care (-1.2%), and real estate (-0.3%) sectors closed lower, loosely reflecting a greater tolerance for riskier stocks.
Prior to Fed Chair Powell's speech, the market was in-tune with a buy-the-dip mindset amid various developments:
- An observation that last week ended on a high note.
- Data suggesting the Delta variant could be peaking in the U.S.
- The FDA granting full approval for the Pfizer (PFE)-BioNTech (BNTX) vaccine for people 16 years and older.
- The House advancing the $3.5 trillion budget resolution and the $1 trillion bipartisan infrastructure bill through procedural hurdles.
- Earnings reports for the most part continuing to beat expectations.
- Taiwan Semi (TSM) planning to increase prices of more advanced chips by 10-20% next year.
- Preliminary manufacturing and services PMIs for August out of the eurozone and U.S. remaining in expansion mode.
- Reports indicating White House advisors and Treasury Secretary Yellen are on board with nominating Fed Chair Powell for a second term.
Interestingly, despite all the good news, the S&P 500 was only up 0.6% entering Friday. Part of that was because of the geopolitical uncertainty in Afghanistan, hawkish-sounding Fed commentary about wanting to taper sooner rather than later, and some hesitancy in front of Fed Chair Powell's speech.
The hawkish commentary continued Friday morning, but Fed Chair Powell struck a diplomatic tone that appeased the market. Briefly, Mr. Powell said "substantial further progress" has been met on inflation and that "clear progress" has been made on employment, implying it's not yet time for the Fed to start tapering asset purchases because the labor market still has room for improvement.
While the Fed chair acknowledged that tapering should probably start before the year ends, he reminded market participants that even when the central bank ends purchases, financial conditions will still be accommodative and that the criteria for interest-rate hikes will be based on a more careful assessment of the economy.
Treasury yields lost some rebound momentum following the comments. The 10-yr yield settled five basis points higher at 1.31% after hitting 1.37% earlier in the week. The U.S. Dollar Index fell 0.9% to 92.68.
Europe Overcomes Early Pressure Following Fed Chief's Speech, Asia Mixed
European equities overcame early losses to finish higher, as a mixed week crossed the finish line that saw positive developments out of the U.S. on the vaccine approval front lift cyclically-natured sectors and stymie a recent bounce for defensively-natured issues. Real Estate, Information Technology and Energy issues all moved higher to contribute to the afternoon rebound, while Financials were able to recover from early pressure that came amid bond yields in the Eurozone and the U.K. paring recent gains. In economic news, French consumer sentiment unexpectedly declined for August, while Italian consumer and manufacturing sentiment for this month also deteriorated. The euro and British pound gained solid ground on the U.S. dollar, which took a decisive downturn following the highly-anticipated speech from Federal Reserve Chairman Jerome Powell in the U.S. Powell held off on providing a start date for the Central Bank to reduce its monthly asset purchases, but did keep expectations of a taper commencement at some point in Q4.
Stocks in Asia finished mixed as choppiness in the markets continued, ahead of today's key speech from U.S. Federal Reserve Chairman Powell, while markets in Hong Kong and China remained volatile on the heels of China ramping up regulatory crackdowns.
Japan's Nikkei 225 Index declined 0.4%, with the yen choppy, while China's Shanghai Composite Index rose 0.6%, adding to the week's recovery from the recent selloff. The Hong Kong Hang Seng Index finished little changed and South Korea's Kospi Index nudged 0.2% to the upside. Australia's S&P/ASX 200 Index finished nearly unchanged and India's S&P BSE Sensex 30 Index advanced 0.3%, remaining near all-time highs.
Economic Calendar Focus
The economic calendar offered mixed reads, with Markit's preliminary Manufacturing and Services PMIs for August slowing more than expected but still comfortably in expansion territory, existing and new home sales coming in above forecasts in July after a couple of rough monthly patches, jobless claims remaining near pandemic lows, and personal income rising more than expected but spending registering a slower pace than projected for last month. The U.S. dollar gave back some of a recent rally, the Treasury yield curve steepened, and gold gained ground.
Next week, the economic calendar will remain in focus as we will get August reports on Manufacturing and Services PMIs from both the ISM and Markit, which will be preceded by the Conference Board's August Consumer Confidence report. However, given the hyper-focus on the Fed and when it may begin to taper its asset purchases, Friday's August nonfarm payroll report will likely garner the most scrutiny and could potentially be a market mover.
Next week's international economic calendar is also poised to bring some reports that may contend for attention, with releases worth noting including: Australia—Q2 GDP and trade balance. China—Manufacturing and Services PMIs. Japan—retail sales, industrial production, and Q2 capital spending. Eurozone—retail sales, consumer price inflation, and consumer and economic sentiment, as well as German retail sales and unemployment change.
With the markets likely remaining choppy as sector leadership could continue to swing on a frequent basis, check out Schwab's Senior Manager of Trading Services Education, Kevin Horner's article, Combining Fundamental and Technical Analysis, for a look at how to marry fundamental and technical analysis in your trading strategy
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.
Innovative Adviser Solutions, LLC, a registered investment adviser, dba Diazo Wealth