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Market Commentary for the week ending August 14th, 2021
- Stocks closed mixed both in the U.S. and worldwide as the COVID variant continues to spread.
- Consumer inflation shows signs of slowing while wholesale inflation surges higher.
- Bond yields climbed higher then dropped as investors consider the economic outlook.
This Week’s Performance Highlights
Stocks were mixed both in the U.S. and worldwide as investors face the reality of rising COVID cases, some reinstated restrictions and mask mandates, and the threat this all poses to the economic reopening and surging stock market.
- At the close of the week U.S. large stocks were among those higher up +0.7% as measured by the S&P 500 and now sitting on a +20.1% gain for the year. The Dow Jones Industrials performed a bit better rising +0.9% while the tech-heavy NASDAQ lagged behind with a small loss of -0.1% for the week.
- Although large stocks generally were higher, small U.S. stocks lost -1.0% and are up just +13.2% for 2021.
- Every sector but one was higher, Energy stocks were off just -0.2%, but no one sector had a standout performance for the week. The Energy sector continues to hold onto the best performance year-to-date in 2021 but, as the accompanying graph shows, it is meaningfully below its June highs while the Financial sector has been rising and sitting just off 2021 highs.
- Nucor Corp. (NUE), the biggest steel producer in the U.S. had the best performing stock among the S&P 500 this week surging +21.0% on news of the infrastructure bill that would create the biggest burst in public works spending in decades. Year-to-date this stock is up +137% and +344% since its COVID lows just 17 months ago!
- International markets were mixed with developed markets rallying +1.4% on average helped by markets such as Italy’s gaining +2.8%. Emerging markets were lower though only by -0.4% held back by stocks in South Korea, Taiwan, Brazil, and others.
- The downward slide for stocks in China paused this week and actually gained +2.3% but still remain lower by -10.7% in 2021 and -24.0% off their February highs.
- Two of the three alternative asset classes posted gains with gold leading the way up +1.1% for the week. Commodity prices inched higher by +0.3% while real estate stocks slipped -0.2%.
- Bond prices closed little changed for the week, up +0.1%, but were volatile. The yield on the benchmark 10-Year U.S. Treasury was below 1.275% on Monday, climbed to 1.375% by later in the week, the fell sharply on Friday to close at 1.283%.
Drinking and trading may be one of the unexpected outcomes of the pandemic. According to a recent survey, 32% of people admit to having bought or sold an investment while intoxicated. Of the Gen Zers in the survey, those between ages 6 and 24, 59% admitted to trading while intoxicated. Two-thirds of the survey respondents said they have regretted an impulsive investment decision and 30% said they have cried over investing.
Roku Inc. (ROKU), a leading streaming service, reported streaming hours declined in the second quarter for the first time in the company’s history to 17.4 billion hours from 18.3 billion in the first quarter. The company has 55.1 million active accounts with the average account streaming 332 hours of content in the quarter.
Consumer Inflation: +0.5%
Consumer prices, as measured by the Consumer Price Index (CPI), rose another +0.5% in Julyinline with economists’ expectations. Although the year-over-year price gains are at a 20-year high of +5.4%, this month’s report was encouraging because it marked a slowdown from the prior month’s +0.9%. Furthermore, the core inflation rate, excluding volatile food and energy prices, was up just +0.3% for the month and +4.3% for the last 12 months.
The accompanying graph shows the 1-year price changes for a select group of consumer items. Used cars and trucks have experienced the biggest price surge up +41.7% followed by energy costs jumping +23.8%. Both of these experienced much more moderate gains in the most recent month.
Source (of details): https://www.bls.gov/news.release/pdf/cpi.pdf
The general consensus among most economists is that the surge in inflation is temporary, what the Federal Reserve is calling transitory, and will moderate once we get past the economic surge from the depths of the pandemic recession.
Producer Prices: +1.0%
Although the surge in consumer prices moderated in the most recent month, producer prices, as measured by the Producer Price Index (PPI), continued powering higher up +1.0% for the month well ahead of economists’ estimates of +0.6%. As the accompanying graph shows, the year-over-year gain of +7.8% is the highest, by far!, in at least a decade. This price indexes was reconstructed about a decade ago making longer term comparisons more difficult but it is likely we have not seen 1-year price gains of this magnitude since the early ‘80s.
Driving producer prices higher is consumer demand helped by government stimulus money along with constraints in supplies and labor. Similar to consumer prices, the belief and hope is that these price gains will subside but this month’s report shows no indication yet of doing so.
Job Openings: 10.07 million
The number of job openings climbed higher in the most recent month to 10.07 million marking another record since this data was first reported about 2 decades ago. This month’s report was nearly 900,000 higher than the month before surprising economists who had forecast a small drop.
Upcoming Economic Reports
- Retail Sales
- Industrial Production
- Housing Starts
- Initial Jobless Claims