Fed Minutes to Receive Unusual Scrutiny | Daily Market Update

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Wednesday, July 7, 2021

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Fed minutes to receive unusual scrutiny. The release of the minutes from the Federal Reserve’s (Fed) June 15-16 policy meeting later today will get more attention than usual as market participants look for more hints on the Fed’s assessment of the economy and future plans to taper asset purchases.

  • Good news has been bad news for rates (but good news for bonds) as rising expectations of asset purchase reductions have contributed to increased interest in Treasuries, pushing rates lower.
  • The 10-year Treasury yield touched 1.34% yesterday before turning higher as the day proceeded to end the day at 1.37%. Yields are lower again this morning.
  • We do not think the early stages of this recovery are nearly as fragile as the last expansion and that the combination of inflation, economic growth, and expected increased Treasury issuance later in the year will contribute to pushing the 10-year Treasury yield higher despite the recent declines.

Daily Insights

US equities attempt to rebound as the S&P 500 index yesterday snapped a seven-day winning streak

  • The Nasdaq composite looks to bounce back as growth names continue their advance and as investors await the Fed minutes release this afternoon.
  • European markets are mixed through midday trading as German industrial production declined unexpectedly in May.
  • Asian markets closed mixed as China tightens regulations concerning overseas share listings.

Decline in Services Purchasing Managers Index (PMI) still leaves positive outlook intact

The ISM’s measure of service sector activity fell to 60.1 from 64.0, missing economists’ consensus expectation of 63.5 (above 50 indicates expansion).

  • The roll-off of the impact from stimulus checks, supply chain challenges, and difficulty finding workers likely all contributed to the decline.
  • Despite the decrease from last month’s record high, overall services activity remains robust.
  • The competing measure of services activity from Markit was largely in line with expectations at 64.6.

More on streaking. As we noted yesterday, there are some amazing bullish streaks taking place.

  • The seven consecutive new highs for the S&P 500 Index is over. The past eight times this happened though, stocks were higher a year later.
  • The S&P 500 Index is up five consecutive months. One year later it has been green 25 out of 26 times.
  • Lastly, the S&P 500 Index is up at least 5% for five straight quarters. That last happened in the mid-1950s and stocks added another 26% the following year.
  • The recent streaks and strength we’ve seen continue to suggest this bull market is alive and well. We’d recommend using any weakness as an opportunity to add to positions.

We will take a closer look at these amazing streaks later today on the LPL Research blog.

View enlarged chart.

Technical update

  • The S&P 500 bounced solidly off its intraday lows on Tuesday, but still began the holiday-shortened week with a 0.2% loss.
  • Crude prices reversed early morning gains that briefly sent prices to their highest level since 2014, and closed down more than 2%.
    • The area near $77/bbl. represents significant resistance for WTI crude oil.
  • The 10-year Treasury yield is now at its lowest level since late February and just 11 basis points above its 200-day moving average at 1.22%.

Three Things That Worry Us

We explore three things that worry us that could make the market more susceptible to a pullback as we enter the second half of 2021.  Learn more in last week’s Weekly Market Commentary.

Tips For Young Investors

In this week’s LPL Market Signals podcast, LPL Director of Research, Marc Zabicki shares his journey and discusses ideas for navigating today’s markets for young investors.

 

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