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U.S. and International Equities
Markets Reverse Course This Week; Growth Names Pullback
The major markets finished the week lower, reversing course from the previous week. Some disappointing corporate guidance along with Thursday’s Gross Domestic Product (GDP) shortfall may have given investors some pause. The S&P 500 Index growth sectors (consumer discretionary, information security, and communication services) lagged the broad-based market this week.
Six Straight Monthly Gains for the S&P
As the economy reopens and inflation pressures bubble up, the S&P 500 Index has quietly gained ground for six straight months. In addition, as the S&P 500 Index closes lower this week, it still managed to reach an all-time high. Second quarter earnings have been impressive overall, with year-over-year earnings growth tracking to an 85% increase.
Emerging Markets Lower for a Second Straight Week
Emerging Market stocks, for the second-straight week, 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 may be quite challenged if these headwinds strengthen.
Fixed Income and Commodities Recap
Core Bonds Hold Their Own as Most Commodities Advance
The Bloomberg Barclays US Aggregate Bond Index gained ground this week as yields decreased. Moreover, high yield bonds, as denoted by the Bloomberg Barclays High Yield Bond Index, finished the week marginally higher. Natural Gas, which has gained over 50% this year, lost over 3% this week, while West Texas Intermediate (WTI) oil returned 2%.
“In a week where U.S. equities treaded water, we were paying close attention to tightening regulatory restrictions in China and of course the Federal Reserve meeting,” explained LPL Research Senior Vice President and Director of Research Marc Zabicki. “The China developments have caused pause for equity investors, certainly in emerging markets. Meanwhile, the Fed gave no new news on tapering, but we believe they will begin to enlighten the market in August or September.”
Economic Weekly Roundup
Fed talk; GDP increases slightly
The Federal Open Market Committee (FOMC) concluded its two day meeting Wednesday and, as expected, there were no changes to interest rates or asset tapering. Moreover, the Federal Reserve (Fed) acknowledged that the economy has made progress toward meeting inflation and employment goals.
Other highlights from this week’s economic calendar include:
The 2021 second quarter Gross Domestic Product (GDP) increased over 6%, however this missed the Bloomberg consensus forecast. This being said, personal consumption, the largest component of the economy, increased over 11%.
The International Monetary Fund (IMF) increased the 2021 U.S. growth forecast a half percent to 7% while keeping the global growth outlook unchanged.
Initial claims for unemployment insurance met economist expectations for the week ending July 24, while continuing claims have held steady during the prior two weeks.
Next week, the following economic data is slated to be released:
Monday: July Markit Purchasing Managers’ Index and Institute for Supply Management Manufacturing report, June construction spending
Tuesday: June durable and factory orders
Wednesday: July Markit Purchasing Managers’ Service Index and Institute for Supply Management non-manufacturing report, July Purchasing Managers Index composite, ADP July employment survey, July auto sales
Thursday: Weekly initial and continuing unemployment claims, June trade balance
Friday: July hourly earnings and workweek statistics, July manufacturing and nonfarm payrolls, July unemployment report, June consumer credit and wholesale inventories
Earnings season kicks continues with about 150 companies reporting Q2 results next week.
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