Weekly Market Performance – Markets Rebound Amid Fed Comments
U.S. and International Equities
Major Markets Rebound
The major markets finished higher after last week’s selloff, as an already strong week was capped off with a broad-based rally on Friday. Emerging markets had an outstanding week, as traders took advantage of marked-down names despite the Chinese government continuing its regulatory crackdown on its companies.
The cyclical and energy sectors were this week’s winners. Market participants, believing that the economic recovery will continue, bid value equities higher amid higher commodity prices. Technology names held their ground this week, while defensive names lagged.
“Dovish tones in Fed Chair Jerome Powell’s Jackson Hole symposium speech reinforced that monetary policy should continue to be a tailwind for this market,” explained LPL Research Senior Vice President and Director of Research Marc Zabicki. “That sentiment resonated through the week and it was firmed by Mr. Powell on Friday.”
New Highs with Low Volatility
In the midst of COVID-19 and its related variants, as well as the economic challenges it has caused with global supply chains, the S&P 500 Index has managed to make over 50 new all-time highs for 2021. Moreover, the S&P 500 has reached a new high every single month this year. In addition, the S&P 500 Index has gone nearly 200 days without a 5% pullback.
Current monetary policy can be seen as having a role in the market’s run, however the major driver this year has been corporate earnings. With regard to the most recent second quarter, earning results blew past estimates. S&P 500 companies have generated more than 20 percentage points of upside for the second straight quarter. Earnings and revenue beat rate, along with revenue upside records, were broken this quarter. Moreover, Q3 guidance has been positive, suggesting that solid earnings momentum can possibly continue.
Fixed Income and Commodities Recap
Bonds selloff while Industrial Commodities Rally
The bellwether Bloomberg Barclays Aggregate sold off this week as bond traders continue to believe in the economic recovery. High yield bonds, as representative of the Bloomberg Barclays High Yield Index, were a bright spots in fixed income this week, as spreads compressed and oil prices rebounded. After a challenging prior week oil, natural gas, and copper all moved much higher this week.
Economic Weekly Roundup
Since 1978, the Federal Reserve (Fed) Bank of Kansas City has hosted a week-long annual economic policy symposium in Jackson Hole, Wyoming. Notable economic policy shifts have occurred at the event, including last year when Federal Reserve Chairman Powell announced that the Fed would be more patient when pursuing its inflation goals and avoid interest rate hikes.
Fed Chairman Powell noted in today’s speech that the economic recovery appears to be moving along, but he also cautioned against tighter monetary policy given slack in the labor markets. Moreover, he noted that the COVID-19 Delta variant along with inflation presents a risk to the economic outlook. As LPL Research has discussed, Powell discussed how inflation appears to be “transitory” and should mitigate.
Other highlights from this week’s economic calendar include:
Initial claims for unemployment insurance increased slightly but held near the pandemic lows set last week, while continuing claims rose modestly. Despite the increase, we believe the employment landscape will continue to improve.
Second quarter Gross Domestic Product (GDP) growth was revised slightly higher which resulted from somewhat stronger consumer spending and U.S. export growth.
Personal spending for July rose 0.3% month over month, in line with expectations.
Personal income jumped 1.1% in July, well above the consensus forecast for a 0.2% increase amid distribution of child tax credit payments and rising wages as labor demand remains healthy.
Next week, the following economic data is slated to be released:
Monday: July pending home sales
Tuesday: June S&P/Case-Shiller composite Home Price Index, August Consumer Confidence
Wednesday: July Construction Spending, August ADP Employment Survey, Markit Purchasing Managers’ Index and Institute for Supply Management Manufacturing Report
Thursday: Weekly initial and continuing unemployment claims, July trade balance, factory and durable orders, Q2 productivity and unit labor costs
Friday: August hourly earnings and workweek statistics, August manufacturing and nonfarm payrolls, August Purchasing Managers’ Index composite and Market Purchasing Managers’ Services Index, August Institute for Supply Management Non-Manufacturing report, August employment report
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