Friday, August 20, 2021
U.S. and International Equities
Major Markets Pullback
The major markets this week finished lower as value sectors reversed course from last week’s gains. The strength in cyclicals the prior week stemmed from the better than expected July jobs report as market participants renewed their faith in the economic recovery’s momentum. However, an increase in COVID-19 cases along with a weak July retail sales report this week has investors concerned that the Delta variant may put additional pressure on economic activity and weigh on corporate profits. Emerging market equities (MSCI EM) finished lower again this week on the back of continued concerns about the Chinese government’s regulatory crackdown on Chinese firms.
“As we grapple with heightened Delta variant concerns, the bid for Treasury bonds is providing a cautionary signal,” explained LPL Research Senior Vice President and Director of Research Marc Zabicki. “However, stocks only endured a modest miss-step and the S&P 500 Index seemed to again bounce off its 50-day moving average. Talk of a potential COVID-19-driven delay to Fed tapering plans likely contributed the late-week recovery for stocks.”
Fixed Income and Commodities Recap
Bonds Rebounded while Commodities Faced Challenges for a Second Straight Week
The bellwether Bloomberg Barclays Aggregate rebounded this week in the face of last week’s bond selloff. Traders took risk off the table in equities and added fixed income to their portfolios in light of weaker-than-expected economic data as well as COVID-19 concerns.
Natural gas paired back gains for a second straight week while oil finished the week at breakeven due to softening demand concerns. Not surprisingly, the S&P 500 Energy sector performance has struggled for the past two weeks as commodity prices declined. Silver has finished solidly in the red for the past two weeks.
Economic Weekly Roundup
Retail Sales Miss; Fed Talk
July retail sales came in weaker than expected on a month-to-month basis, but on a year-to-year basis, retail sales growth was quite strong at 16%. Areas of weakness in July included automobile sales, e-commerce as well as apparel. Even in the midst of increasing COVID-19 Delta variant concerns, restaurant sales saw gains last month.
In addition, July’s Federal Market Open Committee (FOMC) meeting minutes were released this week and they showed the Federal Reserve may be nearing a formal announcement on tapering in the coming months. Most participants noted benefits in reducing the pace of bond purchases as well as progress toward inflation goals. However, many members of the FOMC noted that employment goals have not yet been met.
Other highlights from this week’s economic calendar include:
- The Conference Board’s Leading Economic Index (LEI) accelerated in July and beat economists’ expectations. All ten components made a positive contribution for the first time since March 2020.
- Weekly initial claims for unemployment were reported at under 350,000, the lowest reading since March 2020.
- For the second week in a row, continuing claims came in below 3 million this week.
Next week, the following economic data is slated to be released:
- Monday: August Markit Purchasing Managers’ Index and July existing home sales
- Tuesday: July building permits and new home sales
- Wednesday: July durable orders
- Thursday: Weekly initial and continuing unemployment claims, revised Q2 Gross Domestic Product
- Friday: July personal consumption expenditures, personal income, wholesale inventories, and August University of Michigan sentiment
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