Thursday, July 8, 2021

Top Story

Yesterday’s Federal Open Market Committee (FOMC) meeting minutes showed Committee is split on tapering

• Some members pulled forward their expectations for the appropriate timing of tapering while others noted that the “further substantial progress” goal has not been met yet.
• Also, several members advocated tapering MBS purchases “more quickly or earlier” because of elevated housing prices.
• However, others preferred to taper both Treasury and mortgage securities at the same time- an approach “well aligned” with previous guidance and supportive of financial conditions.
• The minutes noted that the committee will begin to discuss plans for tapering in coming meetings. The next FOMC meeting is July 27-28.
• The Treasury market was initially unfazed by the release but Treasuries rallied overnight and the yield on the 10-year Treasury is the lowest it’s been since February.

Daily Insights

US equities point to a sharply lower open amid concerns about a potential peak in the global recovery, plummeting bond yields, and the Delta COVID-19 variant

• All major U.S. averages are down over 1% as stocks are pulling back from all-time highs.
• European equities are selling off more than the U.S. in midday trading as the European Central Bank (ECB) changed its approach to inflation targeting.
• Asian markets finished lower with the Hong Kong (Hang Seng) market down almost 3% as Japan proposes re-instituting a state of emergency ahead of the Olympics.

Full steam ahead for global economy based on global PMI data

• Global Purchasing Manager’s Index (PMI) data for June pointing to continue strong economic growth around the world.
• The global Manufacturing PMI, at a solid 55.5, has now been in expansionary territory for a year.
• The global Services reading is even stronger at 57.5 after trailing manufacturing much of the pandemic.
• These indicators may signal expansion for some time but may be at or near their peaks as more of the global economy has reopened.
• We continue to recommend investors target regional equity exposures roughly in line with benchmarks across the U.S., developed international, and emerging markets.
• We acknowledge the Delta variant is of greater concern in less vaccinated countries outside the United States.

ISM Services indices off recent highs

• The June Institute for Supply Managers (ISM) Services Index was a bit softer than expected and below May’s reading.
• Survey respondents were bullish on many components of the overall index, including remaining order backlog that needed to be filled and pricing power.
• However, supply managers did point to the proper availability of labor as a chief concern.
• We dig deeper into the recovery in the U.S. services sector today on the LPL Research blog

Claims show signs of leveling off

• Initial claims for unemployment insurance came in at 373k, slightly above expectations for 350k amid holiday distortions and auto plant retooling.
• Continuing claims fell back below 3.4 million, coming in slightly below Bloomberg’s consensus forecast.
• The 4-week moving average of initial claims, which had been on a sharp decline since February, has begun to level off over the past month, a sign that improvements are becoming harder to come by.

Technical update

• Major indexes bounced back yesterday, but weak breadth was evident once again with more stocks declining on the NYSE than advancing.
• First support for the S&P 500 comes in near 4200.
• Investors continue to rush to Treasuries, sending the 10-year yield down below 1.3% this morning. However, the yield has multiple key levels of support near 1.2% and is already its most oversold (based on RSI-14) since March 9, 2020, the day yields hit their all-time low of 0.31%.

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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