Economic Update 8-16-2021
- Economic data for the week included continued high readings for import and producer prices; consumer price inflation remained elevated as well, although showing signs of deceleration. Other data pointed to stronger job openings and a continued reduction in jobless claims.
- Global developed equity markets ended the week with gains generally, while emerging market and U.S. small cap lost ground. Bonds eked out small gains as interest rates again ticked down across the yield curve. Commodities earned marginally positive returns, with crude oil prices little changed for the week on net.
U.S. stocks ended in the positive for the week, as continued strong earnings and a variety of data releases (including inflation) pointed to benign conditions—aside from rising concerns over the fast-spreading Covid delta variant. Small cap stocks bucked the broader trend, by declining a percent. Sector results were unusual, with leadership from both cyclical value (financials and materials) as well as traditional defensives (consumer staples and utilities)—each up around 2% or more. Energy lagged, with a small negative return, while real estate was little changed for the week.
In addition to the $1 tril. infrastructure plan passed by the Senate last week, the ongoing Congressional budget plan appeared to be closer to finalized over the past week, with Senate approval of a $3.5 tril. reconciliation bill (with extensive spending on climate projects, paid leave, child care, education, and health care). Congress is not expected to address the bill for weeks or months, however. An upcoming debt limit increase must also be dealt with, with strong language already flying in both directions. That routine matter used to fly under the radar, and was taken as a given in past decades. However, after the increase being held hostage in 2011 (resulting in the downgrade of U.S. treasury debt’s credit rating from AAA to AA+ by several rating agencies, including S&P, due to the uncertainty it created), it no longer is assumed to get through Congress as smoothly and before the 11th hour as it used to.
Foreign stocks outperformed U.S. across the board in developed regions, in keeping with a stronger euro, while emerging markets lagged all major groups by registering a decline. Results in EM were mixed, with gains in China, India, Russia, and Mexico—the latter along with a quarter-percent interest rate increase. Brazil and South Korea registered declines. Chinese markets may have been helped somewhat by additional government clarity surrounding recent technology, et. al. company crackdowns, which has alleviated some investor concerns.
U.S. bonds experienced a favorable week as interest rates ticked lower across the longer-end of the treasury curve, with sentiment vacillating between concern of an earlier Fed taper and re-elevated Covid fears. Investment-grade corporates outperformed treasuries and high yield slightly. Foreign debt in both developed and emerging markets fared a bit better, in keeping with a weaker U.S. dollar over the course of the week.
Commodities indexes ticked up slightly on net, perhaps helped a bit by a weaker dollar. Agriculture gained several percent, followed by industrial and precious metals. On the other hand, energy as a whole declined, as natural gas prices fell by over -6%. The price of crude oil was little changed at just under $68.50/barrel, despite intraweek volatility caused by concerns over weaker demand due to the delta variant’s spread, along with concerns over higher production.
|Period ending 8/13/2021||1 Week (%)||YTD (%)|
|BBgBarc U.S. Aggregate||0.11||-0.82|
|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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