Weekly Market Performance – Value Outperforms Growth as Yields Increase
U.S. and International Equities
Major Markets Mostly Higher
The major markets this week finished mostly higher as value sectors materials, industrials, and financials led the S&P 500 Index to another higher week for the average. The run in cyclicals can be seen as stemming from last week’s better than expected jobs report as market participants renewed their faith in the economic recovery’s momentum as COVID-19 Delta variant cases increase worldwide. Emerging market equities (MSCI EM) finished lower on the back of continued concerns about the Chinese government’s regulatory crackdown on Chinese firms.
“In the face of worse and worse Delta variant headlines, it was interesting to see cyclicals strong once again this week,” explained LPL Financial Chief Market Strategist Ryan Detrick. “This could be another clue that the economy is on firm ground and some of the continued worries could be overblown.”
Fixed Income and Commodities Recap
Bonds Pullback while Commodities Faced Challenges
Last week’s better than expected jobs report was the catalyst for the 10-year Treasury yield to increase. This caused bond prices across the board to sell off. Despite the move higher in yields, credit spreads, or the additional compensation required to own debt deemed riskier than Treasury securities, remain below historical averages. Municipal securities, as measured by the Bloomberg Barclay’s Municipal index, outperformed taxable bonds for the week likely due to the continued strong technical demand for tax-exempt issues.
Natural gas prices gave back this week due to the U.S. Energy Information Association report indicating increased supplies of the commodity in addition to concerns of softening demand. Silver finished lower for the second consecutive week. Year-to-date, both gold and silver are in the red.
Economic Weekly Roundup
CPI In-Line but Producer Prices Exceed Expectations; Claims Show Continued Improvement
Inflation was in focus this week as both July’s Consumer Price Index (CPI) and Producer Price Index were announced. The headline CPI increased 0.5% month-over-month while core CPI, which strips out volatile food and energy components, increased 0.3%. As expected, the temporary drivers of higher prices in previous months have slowed.
July producer prices increased 1.0% month-over-month, which was more than expected, however they matched June’s increase. Most of the increase was concentrated in services such as passenger fares and hotel rooms.
Other highlights from this week’s economic calendar include:
Unemployment claims improved for a second straight week. Initial unemployment claims met expectations while continuing claims fell to below 3 million for the second straight week.
The National Federation of Independent Business (NFIB) Small Business Optimism Index declined in July. Owners’ sales expectations, better business outlook conditions and earnings trend all declined in the July survey. Almost 50% of owners raised their average selling prices.
In past Weekly Market Performance blogs, we have touched upon how hiring conditions have been challenging. In the latest NFIB report, almost 50% of owners reported job openings that could not be filled, which is a 48-year high.
The University of Michigan Consumer Sentiment declined over 10 points month-over-month to its lowest reading since December 2011 as concerns grow about the Delta variant spread as well as the economic outlook.
Next week, the following economic data is slated to be released:
Tuesday: July retail sales, industrial and manufacturing production, June business inventories, National Association of Home Builders August housing market index
Wednesday: July building permits, housing starts, and Federal Open Market Committee minutes
Thursday: Weekly initial and continuing unemployment claims, July leading indicators
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