Weekly Economic Update

Economic Update 7-06-2021

  • Economic data for the week included a jobs report that came in a bit better than expected, in addition to strength in  consumer confidence, home prices, and other labor metrics such as improved jobless claims. On the other hand, manufacturing sentiment declined a bit—but remained at a very high level.
  • U.S. equity markets moved to new highs along with continued improving economic data, while foreign stocks were held back by Covid and inflation fears. Bonds fared well as interest rates continued to temper across the curve. Commodities gained across the board, notably in agriculture last week.

U.S. stocks reached to more new highs, as consumer confidence and the employment situation report for June generally were in line with the current narrative of continued economic improvement. ‘Growth’ sectors technology, consumer discretionary, and health care led, while energy came in the rear with a decline of a percent. Real estate provided flattish returns for the week, in line with the defensive utilities sector.

The stronger employment report continued to be a mixed blessing of sorts for stock and bond markets, as the improvement in labor conditions is welcomed from a broader economic standpoint. However, the strength of such reports could well continue to shorten the remaining life of the Fed’s accommodative low-interest rate stance. Overall, the stronger labor market may force the Fed’s hand toward a ‘tapering’ announcement late in 2021, with rate increases still likely down the road when they’re more certain about long-term job market repair more solidly occurring.

Foreign stocks lost ground last week, underperforming domestic equities, as a stronger dollar pushing returns lower than in local terms. Both rising inflation caused some concerns of premature central bank rate hikes, in addition to more pervasiveness of the ‘delta’ Covid variant—despite assurances from health professionals that current vaccines provide protection.

U.S. bonds gained ground as interest rates continued to tick downward across the yield curve. This appeared to be due to the effects of quarterly rebalancing by the government (still a big buyer) and others. Long treasuries fared best, while high yield came in weakest—behind investment-grade corporates. Foreign bonds gained in local terms, but returns turned slightly negative when adjusted for a rising dollar. The U.S. federal borrowing limit is in the headlines again, with Treasury Secretary Yellen advising Congress that even the hint of a default on U.S. debt would be ‘unthinkable’ (and unnecessary, to say the least).

Commodities gained on net last week, despite the headwind of a stronger dollar. Every segment saw positive returns, led by the agriculture group as corn and soybean prices spiked by 10%, due to drought/weather stress. The price of crude oil continued to rise last week, by over a percent to just above $75/barrel, as summer demand ramps up. A potential deal for higher production levels at last week’s OPEC+ meeting appeared to be held up by the UAE, with hopes for an agreement this coming week. Otherwise, current production levels are in place by default until April 2022. Improving demand and no supply adjustment could certainly be a recipe for higher oil prices, all else equal. This can be a blessing and a curse for oil producers—while the larger short-term revenues are welcome, a well-known adage is that ‘the cure for high prices is high prices,’ meaning that energy-saving activity kicks in once prices reach a certain level, and threatening demand.

Period ending 7/2/20211 Week (%)YTD (%)
DJIA1.0614.76
S&P 5001.7116.75
NASDAQ1.9613.98
Russell 2000-1.1817.30
MSCI-EAFE-1.109.34
MSCI-EM-1.655.97
BBgBarc U.S. Aggregate0.54-1.48
U.S. Treasury Yields3 Mo.2 Yr.5 Yr.10 Yr.30 Yr.
12/31/20200.090.130.360.931.65
6/25/20210.060.280.921.542.16
7/2/20210.050.240.861.442.05

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. 

FOR ADVISOR USE ONLY – NOT FOR DISTRIBUTION TO THE PUBLIC WITHOUT PRIOR APPROVAL FROM YOUR RESPECTIVE FIRM’S COMPLIANCE DEPARTMENT

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