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Market Commentary for the week ending August 21th, 2021
- Retail sales declinedfor the second time in three months but are still up sharply from pre-pandemic levels.
- Stocks were lower worldwide with small U.S. stocks and emerging markets suffering some of the bigger losses.
- The housing market shows signs of cooling.
This Week’s Performance Highlights
- Stocks fell worldwide with large U.S. stocks holding up better than others down just -0.6% as measured by the S&P 500. The Dow Jones Industrials underperformed falling -1.1% while the tech-heavy NASDAQ declined -0.7%. Although it was a disappointing week the S&P 500 is off just -0.8% from its mid-August record high.
- Small U.S. stocks suffered much more selling pressure down -2.5% for the week. Unlike large U.S. stocks, small stocks have not hit a new high for about 5 months since mid-March and are off -8.1% from that high.
- In spite of the S&P 500 being lower for the week, about half of the individual sectors in the S&P were higher with healthcare and utilities leading the way gaining +1.6% and +1.8% respectively. Energy stocks were punished falling -7.1% on fears that the world economic boom may be slowing.
- International stocks were not spared the selling with developed markets down -2.4% on average and emerging markets slumping -4.3%. The accompanying graph shows some select markets from around the world experiencing some of the poorest week’s performance including China down -6.5% bringing their year-to-date loss to -16.4%.
- Commodities were, by far, the worst performing alternative asset dropping -5.6% impacted meaningfully by the decline in the price of oil. Real estate stocks slipped just -0.5% while gold inched higher by +0.2% but still is down year-to-date.
- Bond prices moved higher by +0.2% leaving the yield on the benchmark 10-Year U.S. Treasury at 1.261%.
On Monday, August 16th, the S&P 500 was up +100% from its COVID low on March 23, 2020. It took the S&P 500 just 511 calendar days to double from that low making it the fastest double from a major market low in at least the last 50 years! After doubling in the past, the markets continued meaningfully higher for an extended period of time. Time will tell if that will be the same with today’s markets!
Sometimes the so-called “smart money” is not so smart. According to an analysis of public filings done by RBC Capital Markets, a large investment firm, Amazon (AMZN) was the biggest stock holding by hedge funds in the second quarter. Other Wall Street firms confirmed the same. So far this has been ill-timed as Amazon’s stock has fallen -14.2% from its June high while the overall market has been generally higher.
Retail Sales: -1.1%
Retail sales fell -1.1% in July and have now fallen in 2 of the last 3 months. Sales of cars and trucks, which account for about 20% of total retail sales, experienced one of the steepest declines down -3.9% not necessarily due to a lack of demand but instead due to a shortage of cars to sell. Online sales were lower by -3.1% following a surge last month driven by Amazon’s Prime Day. Restaurants and bars continued to see growth although at a much slower rate than in prior months up +1.7%.
The pandemic and all of the economic support provided by the government has actually been good for retail sales as the accompany graph illustrates. The blue line in the graph represents actualretail sales. The small orange line on the right is a simulation of what retail sales would have been had they continued to grow at the same pace they had been for the prior several years. Today’s sales are more than +12% above this long-term trend line.
Industrial Production: +0.9%
Industrial Production, a measure of manufacturing, mining, and utility production, rose more than forecast in July up +0.9%. This was meaningfully better than the month before. The month’s strength was helped a great deal by motor vehicle production up +11.2% due to manufacturers not taking their usual summer break. This was a big improvement for the auto sector but production still remains -3.5% below the recent January peak in production.
Housing Starts: 1.53 million
The housing market is showing signs of cooling a bit with new Housing Starts falling -7% in July compared to the month before coming in at an annualized rate of 1.53 million homes. The South was the only region to gain for the month up just +2.1% while the Northeast saw a staggering decline of -49%. Builders are struggling with higher construction costs and supply constraints.
As the accompanying graph shows, although starts did fall from the prior month they are still near recent highs but well below the levels in the mid-2000’s housing boom.
Initial Jobless Claims: 348,000
Weekly initial jobless claims continued lower to a post-pandemic low of 348,000. This is just a fraction of what they were at the height of the pandemic but still about 50% higher than pre-pandemic levels.
Upcoming Economic Reports
- Durable Goods Orders
- New Home Sales
- Existing Home Sales
- Markit Manufacturing PMI
- Market Services PMI
- Core PCE Price Index
- Consumer Sentiment Index
- Initial Jobless Claims