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  3. Market Commentary for the week of July 12, 2021

Market Commentary for the week of July 12, 2021

Submitted by Oram & Kaylor on July 12th, 2021

 

MARKET VIEW WEEKLY
July 2nd, 2021

 

          ECONOMIC REVIEW[1]

  • Initial Jobless claims came in at a pandemic low, falling to 364,000, beating expectations of 390,000.
  • Non-farm payrolls increased 850,000 for the month of June, ahead of the consensus expectations of 700,000.
  • ISM Manufacturing index fell slightly to 60.6 in June, behind consensus expectations of an increase to 60.9 (a number over 50 signals expansion, and under 50 signals contraction).
  • The unemployment rate rose to 5.9% from 5.8% in May missing the estimate of a decrease to 5.7%.
  • Consumer Confidence Index rose to 127.3 in June, up sharply from the revised reading of 120 in May.

 

INSIGHT: As the United States continues its path to recovery, a major roadblock on that path is the performance of the labor market. In the month of June, three major economic data points surrounding the labor market had significant estimate beats. As the economy moves forward, continued improvement in the labor market will be a key indicator for the strength of the recovery. While it was a decline, the ISM Manufacturing index still stands comfortably above 50, a good indicator that the economy is in the expansion stage. However, price pressures have continued to show up at the manufacturer level, as the prices paid for raw materials reached its highest level since 1979. This should not come as a shock due to the release of pent-up demand as the U.S emerges from the pandemic, coupled with supply constraints that are typical of an economy coming out of a recession. Lastly, the Consumer Confidence Index reached its highest point since the onset of the pandemic. The bounce back in optimism from the consumer has been led by the expectation that personal business and financial situations will continue to improve moving forward. 

 

 A LOOK FORWARD1

  • Initial jobless claims will be released on Tuesday, with expectations of a decrease in claims to 350,000, down from the prior reading of 365,000.
  • The ISM Services Index will also be released on Tuesday with economists expecting a pull back from the prior months reading of 64 to 63.6.
  • Continuing jobless claims will be released on Thursday and is forecasted to decline to 3.325 million from 3.469 million.
  • The JOLTS job openings data will be released on Wednesday and is expected to increase to 9.388 million from the prior reading of 9.286 million.

 

INSIGHT:  Initial Jobless claims data is expected to continue its trend downward, as economists anticipate that the economy will continue to improve as more states reopen their economies. Despite the largely positive outlook for the U.S economy, the ISM Services Index is expected to retreat slightly from the prior months reading. This is indicative that consumer concerns regarding Covid-19 may still be present, though much less pervasive as the data continues to be strong. Continuing jobless claims is forecasted to decline following the roll back of some unemployment benefits, which may act as a catalyst for people to head back to work.

 

  • MARKET UPDATE1

Market Index Returns as of 7/2/21

WTD

QTD

YTD

1 YR

3 YR

5 YR

S&P 500

1.71%

1.30%

16.75%

41.23%

19.05%

17.90%

NASDAQ

1.96%

0.94%

13.98%

44.44%

25.78%

25.94%

Dow Jones Industrial Average

1.06%

0.86%

14.76%

37.37%

15.28%

16.83%

Russell Mid-Cap

0.27%

0.72%

17.09%

49.97%

16.67%

15.72%

Russell 2000 (Small Cap)

-1.18%

-0.20%

17.30%

62.76%

13.16%

16.32%

MSCI EAFE (International)

-1.10%

0.47%

9.34%

30.94%

8.97%

10.21%

MSCI Emerging Markets

-1.65%

-1.38%

5.97%

34.91%

11.11%

12.58%

Bloomberg Barclays US Agg Bond

0.54%

0.13%

-1.48%

-0.33%

5.42%

3.01%

Bloomberg Barclays High Yield Corp.

0.46%

0.20%

3.82%

14.76%

7.60%

7.44%

Bloomberg Barclays Global Agg

0.02%

0.03%

-3.18%

2.55%

4.31%

2.29%

    OBSERVATIONS1

  • U.S. equities moved higher this week as indicated by the S&P 500 which was up +1.71% on the week.
  • In the U.S., smaller sized companies underperformed their larger-sized counterparts, as the Russell 2000 index fell   -1.18% on the week.
  • International stocks as measured by the MSCI EAFE were negative on the week, down -1.10%, underperforming domestic stocks.
  • Emerging market stocks were also negative on the week with the MSCI EM index down -1.65%.
  • U.S. investment grade bonds were positive last week with the Bloomberg Barclays U.S. Aggregate Bond index up +0.54%.

 

  • FUN FACTS

AIR QUALITY: The lockdown of economies around the world beginning in March 2020 reduced auto, truck and airplane emissions.  84% of nations surveyed reported improvement in their overall air quality in 2020 when compared to 2019.  Nitrogen dioxide, the gas released in the air from the burning of fuel, declined 26% in the USA during 2020 when compared 2019’s level (source: IQAir’s 2020 World Air Quality Report, ScienceDirect). 

TRAVEL: When travel for vacations slowed in the summer of 2020, rental car companies sold off more than 500,000 rental cars just to survive, leading to a shortage of rental cars and higher prices in 2021 (source: CNN). 

FEWER BABIES: In spite of being on lockdown with our spouses/partners, the number of US births fell in 2020 to 3.60 million births, the 12th declining year of births in the last 13 years (source: CDC). 

AT THE POOL: American cities do not have enough lifeguards to service pools nationwide, e.g., Austin, TX is short 80% of its 750-lifeguard goal for the summer of 2021.  The pandemic shutdown put a freeze on training and certification programs required for lifeguards (source: American Lifeguard Association).  

NO ZOOM FOR ME: 40% of teachers with 21-30 years of experience said they were considering early retirement or quitting the profession completely (source: National Education Association, August 2020). 

 

 

 

 

 

Economic Definitions

Initial Jobless Claims: Initial unemployment claims track the number of people who have filed jobless claims for the first time during the specified period with the appropriate government labor office. This number represents an inflow of people receiving unemployment benefits.

Non-farm Payrolls: This indicator measures the number of employees on business payrolls. It is also sometimes referred to as establishment survey employment to distinguish it from the household survey measure of employment.

Unemployment Rate: The unemployment rate tracks the number of unemployed persons as a percentage of the labor force (the total number of employed plus unemployed). These figures generally come from a household labor force survey.

The Conference Board Consumer Confidence Index: The Consumer Confidence Survey® reflects prevailing business conditions and likely developments for the months ahead. This monthly report details consumer attitude, buying intentions, vacation plans and consumer expectation for inflation, stock prices and interest rates. Data are data available by age, income, region and top 8 states.

Personal Income: Consumer or Household Income (often referred to as personal income) tracks all income received by households including such things as wages and salaries, investment income, rental income, transfer payments, etc. This concept is not adjusted for inflation.

Personal Spending: Consumer or Household Spending (also referred to as consumption) tracks consumer expenditures on goods and services. This concept is not adjusted for inflation.

PCE (headline and core): PCE deflators (or personal consumption expenditure deflators) track overall price changes for goods and services purchased by consumers. Deflators are calculated by dividing the appropriate nominal series by the corresponding real series and multiplying by 100.

New Home Sales: This concept tracks sales of newly constructed homes during the reference period. The Implicit US index is computed by taking the number of house sold in the US and dividing it by the seasonally adjusted number of houses sold in the US.

University of Michigan Consumer Sentiment Index: Consumer confidence tracks sentiment among households or consumers. The results are based on surveys conducted among a random sample of households. Target Audience: representative sample of US households (excluding Alaska and Hawaii). Surveys of Consumers collects data on consumer attitudes and expectations summarized in the Consumer Sentiment, in order to determine the changes in consumers' willingness to buy and to predict their subsequent discretionary expenditures. This Index is comprised of measures of attitudes toward personal finances, general business conditions, and market conditions or prices. Components of the Index of Consumer Sentiment are included in the Leading Indicator Composite Index. Unit: Index (Q1 1966=100)

The Federal Reserve System: The central bank of the United States. It performs several general functions to promote the effective operation of the U.S. economy and, more generally, the public interest.

Index Definitions

S&P 500: The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

NASDAQ: The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

Dow Jones Industrial Average: The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Russell Mid-Cap: Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index.

Russell 2000: The Russell 2000 Index is comprised of the smallest 2000 companies in the Russell 3000 Index, representing approximately 8% of the Russell 3000 total market capitalization. The real-time value is calculated with a base value of 135.00 as
of December 31, 1986. The end-of-day value is calculated with a base value of 100.00 as of December 29, 1978.

MSCI EAFE: The MSCI EAFE Index is a free-float weighted equity index. The index was developed with a base value of 100 as of December 31, 1969. The MSCI EAFE region covers DM countries in Europe, Australasia, Israel, and the Far East.

MSCI EM: The MSCI EM (Emerging Markets) Index is a free-float weighted equity index that captures large and mid-cap representation across Emerging Markets (EM) countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country.

Bloomberg Barclays US Agg Bond: The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US 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).

Bloomberg Barclays High Yield Corp: The Bloomberg Barclays US Corporate High Yield Bond Index measures the USD-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.

Bloomberg Barclays Global Agg: The Bloomberg Barclays Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers.

Disclosures

Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. Past performance cannot guarantee future results.

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect again loss. In general, the bond market is volatile; bond prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed-income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Vehicles that invest in lower-rated debt securities (commonly referred to as junk bonds or high-yield bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.

The statements provided herein are based solely on the opinions of the Advisor Group Research Team and are being provided for general information purposes only. Neither the information nor any opinion expressed constitutes an offer or a solicitation to buy or sell any securities or other financial instruments. Any opinions provided herein should not be relied upon for investment decisions and may differ from those of other departments or divisions of Advisor Group or its affiliates.

Certain information may be based on information received from sources the Advisor Group Research Team considers reliable; however, the accuracy and completeness of such information cannot be guaranteed. Certain statements contained herein may constitute “projections,” “forecasts” and other “forward-looking statements” which do not reflect actual results and are based primarily upon applying retroactively a hypothetical set of assumptions to certain historical financial information. Any opinions, projections, forecasts and forward-looking statements presented herein reflect the judgment of the Advisor Group Research Team only as of the date of this document and are subject to change without notice. Advisor Group has no obligation to provide updates or changes to these opinions, projections, forecasts and forward-looking statements. Advisor Group is not soliciting or recommending any action based on any information in this document.

 

[1] Data Obtained from Bloomberg as of 7/02/2021                                                                                                                       

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