Friday, July 23, 2021
U.S. and International Equities
Markets Higher as Growth Leads
The major markets finished higher this week after starting the week lower, with the Dow Jones off by over 2% after Monday’s trading. Market participants were concerned about the increase in Delta COVID-19 virus cases, but market sentiment changed throughout the week given strong second quarter earnings results. Growth sectors (consumer discretionary, information technology, and communication services) led the week on the backs of positive earnings, but also on the belief that even in the midst of an economic recovery, these stocks can continue to do well in comparison with the economically-sensitive value names.
“The big news this week has been the dip in the 10-year yield, which started the market on a defensive note,” explained LPL Research Senior Vice President and Director of Research Marc Zabicki. “However, a robust earnings season so far has changed some of that narrative. The bulls still lead this market.”
Emerging Markets and Energy Lose Ground
Both emerging markets as well as the energy sector lagged this week and are lower over the past month. With regard to energy, these names appear to be pricing in a ceiling for West Texas Intermediate (WTI) crude, potentially on concerns about increasing supplies globally. Prices in the natural gas futures markets are signaling falling prices in the coming months even though spot prices were up sharply this week.
Emerging Market stocks appear challenged by regulations placed on U.S.-listed Chinese stocks by Chinese regulators in addition to ongoing and multi-faceted U.S.-China tensions. Going forward, emerging market stock performance could be quite challenged if these headwinds strengthen.
Fixed Income and Commodities Recap
Core Bonds Advance as Commodities Pullback
The Bloomberg Barclays US Aggregate Bond Index gained ground again this week as yields declined. High yield bonds, as denoted by the Bloomberg Barclays High Yield Bond Index, finished the week flat as stocks rebounded in what continues to be a relatively tough year for fixed income. Commodities were mostly lower this week with natural gas the standout, returning over 10% for the week and almost 60% for the year.
Economic Weekly Roundup
Shortest Recession on Record; Economy Expands as Housing Market Heats Up
The National Bureau of Economic Research (NBER) announced this week that the economy bottomed in April 2020, making the pandemic-driven recession the shortest on record.
Other highlights from this week’s economic calendar include:
- June’s Organization of Economic Co-operation and Development (OECD) leading indicators continue to remain above trend and continue to expand worldwide.
- June housing starts were higher than expected, but the lack of supply remains a challenge. This demand/supply imbalance has put an upward pressure on prices and could affect future demand given the lack of affordability.
- Initial claims spiked to its highest weekly total since mid-May and continuing claims also came in above economist expectations.
Next week, the following economic data is slated to be released:
- Monday: June building permits and new home sales
- Tuesday: June durable orders, May Federal Housing Finance Agency (FHFA) home price index, May Case-Schiller home price index
- Wednesday: June wholesale inventories, Federal Reserve (Fed) FOMC meeting
- Thursday: Weekly initial and continuing claims, Q2 GDP, June pending home sales
- Friday: June personal income and personal consumption, July University of Michigan sentiment
Earnings season kicks into high gear with over 180 companies reporting Q2 results next week.
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