Is This the Start of a Correction? | Daily Market Update

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Friday, July 9, 2021

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Is This the Start of a Correction?

  • Despite the S&P 500 Index making a record high earlier this week, investors are clearly on edge with the CBOE Volatility Index (VIX) briefly spiking more than 40%  from last week’s levels.
  • Poor breadth, high valuations, weak seasonality and a historically difficult to navigate Year 2 of the bull market are all reasons to believe near-term risks are elevated.
  • However, despite potential risks, we explore three reasons why we are maintaining our overweight equities recommendation, later today on the LPL Research blog.

Daily Insights

US equities attempt to rebound after yesterday’s market pullback

  • The Dow and S&P 500 opened higher while the Nasdaq is little changed, with all major averages on track for losses this week.
  • European markets are higher through midday trading with the Euro STOXX 50 up over 1% as U.K.’s GDP slowed in May.
  • Asian markets finished mostly weaker, even though China’s June new bank loans and credit growth surprised to the upside.

Yields try to stabilize. Yields are bouncing today, but story of the day yesterday was the continued surprise weakness from the 10-year Treasury yield.

  • After peaking at 1.75% in late March, the 10-year yield spent time beneath 1.25% yesterday.
  • Incredibly, it was at 1.48% on July 1st, so the stunning drop has many investors worried if the bond market knows something the rest of us don’t.
  • Peak growth, peak inflation, peak reflation trade, valuations, and worries over COVID-19 variants have all been cited as potential reasons for the move lower.
  • Although this move lower has surprised us as well, we continue to expect higher growth and higher inflation expectations to eventually push yields higher by year-end and maintain a target of between 1.75% to 2.00% on the 10-year yield.

Technical update

  • Stocks saw broad based selling yesterday, with decliners outnumbering advancers by more than 5:1 on the New York Stock Exchange for only the fifth time this year.
  • The S&P 500 has support at the 50-day moving average (4217), followed by 4164.

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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