Conway’s QuickTake: Week of August 16, 2021
Here’s What Happened Last Week:
U.S. Equity Markets
• Most equities rose last week, as investors looked past recent concerns that the renewed coronavirus spread may hinder future economic activity. The S&P 500 Index rose 0.8% to a new all-time high while the tech-heavy Nasdaq Composite Index slightly fell a few basis points.
• Despite the lighter-than-normal trading volume, several stocks made headlines. ConocoPhillips and Southwest Airlines both struggled as consumers fear that the recent uptick in new cases may curtail demand for travel. Disney reported an increase in visitors to their theme parks, boosting prospects. Lastly, moviegoers may soon be able to pay for tickets at AMC Entertainment theaters using bitcoin. This news ironically paints a positive outlook for the company which once was near bankruptcy in the middle of the pandemic.
• Most S&P 500 sectors advanced during the week aside from energy, which fell due to supply and demand concerns due to increasing coronavirus cases. Materials and consumer staples both did well, rising more than 2% during the week.
• Value outperformed growth while large-cap stocks rose and beat small-caps, which declined for the week.
International Equity Markets
• International equities were mixed. Developed markets rose and led emerging markets which fell as represented by their MSCI indices.
• European and Japanese stocks both recorded strong gains according to their MSCI indices. However, COVID developments differed between regions as the number of cases in the European Union remained stable, in the U.K. they declined, and in Japan they continued to spike. Tokyo is considering controlling foot traffic and crowds in advance of the start of the 2020 Paralympics.
• Chinese stocks slightly rose despite concerns the government’s intervention in some private sectors would spread to others. China released a 5-year plan outlining their related intentions.
• Treasury yields slightly declined last week, after rising during the first four days. Comments made by the Federal Reserve to start tapering bond purchases spurred the initial increase. The 10-year Treasury yield ended the week at 1.28%, near last week’s level.
• High yield corporates outperformed their investment grade counterparts. Throughout the week, investment grade bonds experienced relatively low trading volumes but higher than expected new issuance by market participants. Given the predominantly risk-on sentiment during most of the year, high yield bonds are beating investment grade bonds.
• Municipal bonds declined around 0.2% during last week as yields on longer-dated maturities rose, more so than shorter-dated tenors.
U.S. Economic Data/News
• As inflation remains in focus, the Bureau of Labor Statistics reported that the consumer price index increased by 0.5% in July, less than the 0.9% reading from June, and the smallest monthly increase since March. Although this slowdown appears to justify prior statements that it is only transitory, more time needs to elapse to determine the long-term trend.
• The Senate passed a $1 trillion bipartisan infrastructure bill, aimed at rebuilding transportation-related infrastructure, improve internet access in remote locations, and upgrade the electric and water systems nationwide. However, the future path remains murky as the bill may stall for weeks or months in the House unless the Senate passes an even larger $3.5 trillion social policy bill.
• The weekly initial jobless claims tallied in at 375,000, which was the third consecutive week of declines. Similarly, the count of continuing claims fell to under 2.9 million, the lowest level since the start of the pandemic.
• Recent comments by the Federal Reserve to taper the bank’s bond purchases earlier than expected was offset by a disappointing consumer sentiment survey released by the University of Michigan.
International Economic Data/News
• European news was mixed. The U.K. economy expanded by 4.8% in the second quarter after the strict lockdown rules were previously lifted. However, Eurozone industrial production fell 0.3% in June given supply-chain problems. Meanwhile, protests broke out in France and Italy after fully vaccinated people were given health passes to visit restaurants and other public events.
• Japanese wholesale prices rose in July by 5.6% on a year over year scale, the highest annual rate in 13 years. This follows a heightened 5.0% increase in June.
• Separately, Japan’s Prime Minister Yoshihide Suga stated his intentions to expand Japan’s growth prospects in the future. First, Japan has committed to be carbon-neutral by 2050 which they believe is a core part of future economic expansion. The nation is also setting policies to digitize administrative procedures, increasing efficiency levels for simple tasks.
• China reported their broad measure of credit and liquidity in the economy, termed total social financing, rose 10.7% in July on a year over year scale. This is the smallest increase since February 2020. However, inflation was largely unchanged in July as the producer price index rose 9% year over year driven by higher commodity prices. Inflation was not a factor in the increase.
Tuesday, August 17, 2021
• US Retail Sales
• US Industrial Production
• Euro area GDP
Wednesday, August 18, 2021
• UK Core Consumer Price Index
Thursday, August 19, 2021
• Philadelphia Fed Business Survey
• Initial Jobless Claims
Sources: The WSJ, T. Rowe Price Global Markets Weekly Update, GS Weekly Market Monitor
This commentary was written by Craig Amico, CFA®, CIPM®, Associate Director, Noreen Brown, CFA®, Chief Wealth Strategist and Steven Melnick, CFA®, Associate Director at Summit Financial, LLC., an SEC Registered Investment Adviser (“Summit”), headquartered at 4 Campus Drive, Parsippany, NJ 07054, Tel. 973-285-3600. It is provided for your information and guidance and is not intended as speciﬁc advice and does not constitute an offer to sell securities. Summit is an investment adviser and offers asset management and ﬁnancial planning services. Indices are unmanaged and cannot be invested into directly. The periodic returns are represented by the following indices: large cap value by Russell 1000 Value TR Index, large cap blend by Russell 1000 TR Index, large cap growth by Russell 1000 Growth TR Index, mid cap value by Russell Mid Cap Value TR Index, mid cap blend by Russell Mid Cap TR Index, mid cap growth by Russell Mid Cap Growth TR Index, small cap value by Russell 2000 Value TR Index, small cap blend by Russell 2000 TR Index, and small cap growth by Russell 2000 Growth TR Index, international developed by the MSCI EAFE NR USD Index, Emerging Markets by the MSCI EM NR USD Index, U.S. Aggregate Bond by the BBgBarc US Agg Bond TR USD Index, U.S. Municipals by the BBgBarc Municipal TR USD Index, and Corporate High Yield by the BBgBarc US Corporate High Yield TR USD Index. The S&P 500 Index is a market capitalization-weighted Index of 500 widely held stocks often used as a proxy for the stock market. It measures the movement of the largest issues. Standard and Poor’s chooses the member companies for the 500 based on market size, liquidity, and industry group representation. Included are the stocks of eleven different sectors. The Nasdaq Composite Index is a large market capitalization-weighted index of more than 2,500 U.S.-domiciled stocks. The index’s composition is heavily weighted to the information technology sector, with consumer services, health care and financials the next most prominent industries. The Russell 2000 Index measures the performance of the small cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 1000 Index measures the performance of the large cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index representing approximately 90% of the total market capitalization of that index. It includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market. It is constructed to provide a comprehensive, unbiased, and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected. The MSCI EAFE Index (Europe, Australasia, Far East) captures large- and mid-cap representation across developed markets countries around the world, excluding the U.S. and Canada. The index covers approximately 85% of the free float-adjusted market capitalization in each country. The MSCI Europe Index captures large- and mid-cap representation across developed markets countries in Europe. The index covers approximately 85% of the free float-adjusted market capitalization across the European developed markets equity universe. The MSCI Emerging Markets Index captures large- and mid-cap representation across emerging markets countries across the world. The index covers approximately 85% of the free float-adjusted market capitalization in each country. The MSCI Japan Index captures large- and mid-cap segments of the Japanese market. The index covers approximately 85% of the free float-adjusted market capitalization in Japan. The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency. The Bloomberg Barclays Municipal Bond Index covers the U.S. dollar-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds. Data in this newsletter is obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Consult your financial professional before making any investment decision. Past performance is no guarantee of future results. Diversification/asset allocation does not ensure a profit or guarantee against a loss.