Conway’s QuickTake: Week of August 23, 2021
Here’s what happened last week:
U.S. Equity Markets
- Stocks fell during last week, but not before the S&P 500 Index set a new all-time high on Monday afternoon. The index has more than doubled from its most recent low set during the beginning of the pandemic on March 23, 2020.
- Pfizer and Moderna stocks both benefitted from the recent announcement that COVID vaccine booster shots will be offered to prior recipients of the first two shots who qualify. Target and Walmart both reported strong in-store sales in the second quarter relative to a year ago. Somewhat related, Amazon plans to open new behemoth-sized physical retail footprints that may pose a threat to their competitors.
- Within S&P 500 sectors, energy stocks fared the worst falling around 7% due to worries about future demand levels. Health care and utilities led and rose almost 2%.
- Although all segments declined, large-cap stocks beat small-caps in a relative sense. The small-cap Russell 2000 Index reached correction territory after it has fallen more than 10% since March. Growth marginally beat value over the week.
International Equity Markets
- International stocks also declined. International developed beat emerging markets as represented by their MSCI indices.
- European equities fell amid concerns about the delta variant, the situation in Afghanistan, and hampered Chinese growth expectations.
- Japanese stocks also fell after discouraging reports that Toyota was planning to cut production by 40% for September relative to prior forecasts, invoking doubt of any future economic growth.
- Chinese stocks plummeted following expanded regulations enforced in various sectors and industries. The MSCI China Index fell almost 8% last week and is down nearly 19% for the year.
- Treasury yields slightly declined last week as the 10-year yield hit 1.26%, just 2 bps lower than the week prior. Dovish signals released from the Federal Reserve and ongoing concerns around the spread of the delta variant of the coronavirus led the decline.
- Credit spreads widened last week as demand for both short- and long-duration investment grade corporate bonds was strong. High yield bonds were flat and experienced modestly light levels of trading. New issuance was expectedly light in both flavors of corporate bonds.
- Municipal bonds were largely unchanged for the week and underperformed Treasuries. Muni yields rose a few basis points compared to last week, mostly further out on the yield curve. The Bloomberg Barclays Municipal Bond Index consequently rose a modest 2 bps.
U.S. Economic Data/News
- On Wednesday, the Federal Reserve released minutes from their July 27th-28th policy-setting meeting which indicated a willingness to start tapering their $120 billion monthly asset purchases. This news concerned investors but officials stressed there is no link between potential tapering and interest rate hikes. Inflation risk remains a concern.
- Retail sales news was mixed. The Commerce Department reported that overall retail sales fell by 1.1% in July compared to June, but the results varied per sector. Auto sales plunged by 3.9% after exceedingly high prices capped consumer demand and semiconductor chip shortage problems continued. However, sales at restaurants and bars soared indicative the latest wave of new cases did not hurt their businesses.
- The amount of new home construction fell 7% in July compared to June’s level and was much more than consensus expectations. Contrary to this, industrial production rose 0.9% in July, higher than forecasted. This is due in large part to automakers altering plans to shut down production lines.
- Initial weekly jobless claims fell to a new pandemic-era low of 348,000. New jobless claims have fallen for four consecutive weeks and are down more than 50% since January.
International Economic Data/News
- In the U.K., the annual CPI increase fell to 2.0% in July, down from 2.5% in June. This new level is in-line with the Bank of England’s target. Meanwhile in the Eurozone, annual inflation increased to 2.2% in July, up from 1.9% in June. Higher energy costs are responsible for the Eurozone increase.
- Other economic news from the U.K. was mixed. Retail sales fell by 2.5% in July compared to June, below expectations. However, the national unemployment rate fell to 4.7% in July as employers added 182,000 net new jobs to the economy.
- Japan’s government made the difficult decision to extend the coronavirus-induced state of emergency to September 12th. It now affects many more prefectures, up to twelve total including Tokyo. Offsetting this news, the Japanese gross domestic product grew by an annualized 1.3% in the second quarter, rebounding from the annualized 3.7% contraction in the first quarter.
- Aside from dealing with various new regulations that China instituted in different industries, other economic data was murky. Retail sales and consumer services were lower attributed to poor weather and localized coronavirus outbreaks. Diminished construction and industrial production were reflective of some regulations and slowing export growth.
Monday, August 23, 2021
- US Manufacturing PMI
- US Services PMI
Wednesday, August 25, 2021
- Germany Ifo Business Confidence Survey
Thursday, August 26, 2021
- US Jobless Claims
- Japan CPI
Friday, August 27, 2021
- US PCE figures
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 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 China Index captures large- and mid-cap representation across China A shares, H shares, Red chips, P chips and foreign listings. The index covers about 85% of this China equity universe. 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. The Bloomberg Barclays U.S. Corporate High-Yield Index measures the U.S. dollar-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded. The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. 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. 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