Economic Update 8-09-2021
- Economic data for the week included a slight drop in manufacturing, offset by continued strength in services. The July employment situation report came in stronger than expected, on both job creation and a lower unemployment rate.
- Global equity markets saw gains across the board, although emerging markets were held back a bit by China. Bonds fell back as interest rates moved higher. Commodities fell back, largely due to a sharp correction in crude oil prices based on demand fears.
U.S. stocks gained to further new highs last week, with continued strength in economic growth and a positive Friday jobs report (although the latter ran the risk of the ‘good news is bad news’ theme if it raises the likelihood of earlier Fed movement).
By sector, financials led with gains of nearly 4%, along with higher interest rates which steepened the yield curve and improved net interest margins, with utilities coming in next, at over 2%—the bulk of other sectors were oddly little changed. Consumer staples were the only losing group for the week. Real estate assets also gained during the week, despite an increase in interest rates.
Foreign stocks rose at about the same pace as domestic equities, with U.K. and Europe faring slightly better than Japan and the emerging markets. European economic conditions and earnings are showing improvement, albeit to a slower degree than the U.S.—as has been the case for the past year. The Bank of England has already begun to discuss monetary tightening in more certain terms, in keeping with greater European concerns about rising prices. At the same time, the IMF downgraded Japan’s growth prospects for this year, which wasn’t ideal for sentiment. Conditions were especially mixed in the EM world, with China continuing to experience declines upon the regulatory uncertainty noted earlier, as well as a rising Covid case problem, while India and greater Asia rebounded.
U.S. bonds fell broadly as interest rates ticked higher on Friday, following a strong jobs report. Treasuries fared slightly better than investment-grade corporates. Foreign bonds fared a bit worse than domestic, with the added headwind of a stronger dollar, especially noted with a percent loss in emerging market local debt.
Commodities fell mostly across the board last week, along with a stronger dollar. Although agriculture experienced a gain of several percent, but was offset by an over -5% drop in the energy sector, in addition to a drop in metals. While natural gas prices spiked due to continued hot summer weather and air conditioning needs, the price of crude oil plummeted by nearly -8% to just over $68/barrel. The key issue appeared to be a combination of higher supplies coupled with fears of a demand decline resulting some from re-implemented travel restrictions in areas like China—designed to combat the Covid delta variant.
|Period ending 8/6/2021||1 Week (%)||YTD (%)|
|BBgBarc U.S. Aggregate||-0.42||-0.92|
|U.S. Treasury Yields||3 Mo.||2 Yr.||5 Yr.||10 Yr.||30 Yr.|
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.
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