- J. J. Wenrich CFP®
Weekly Market Performance – Value Outperforms Growth as Yields Increase
U.S. and International Equities
Major Markets Mostly Higher
The major markets this week finished mostly higher as value sectors materials, industrials, and financials led the S&P 500 Index to another higher week for the average. The run in cyclicals can be seen as stemming from last week’s better than expected jobs report as market participants renewed their faith in the economic recovery’s momentum as COVID-19 Delta variant cases increase worldwide. Emerging market equities (MSCI EM) finished lower on the back of continued concerns about the Chinese government’s regulatory crackdown on Chinese firms.
“In the face of worse and worse Delta variant headlines, it was interesting to see cyclicals strong once again this week,” explained LPL Financial Chief Market Strategist Ryan Detrick. “This could be another clue that the economy is on firm ground and some of the continued worries could be overblown.”
Fixed Income and Commodities Recap
Bonds Pullback while Commodities Faced Challenges
Last week’s better than expected jobs report was the catalyst for the 10-year Treasury yield to increase. This caused bond prices across the board to sell off. Despite the move higher in yields, credit spreads, or the additional compensation required to own debt deemed riskier than Treasury securities, remain below historical averages. Municipal securities, as measured by the Bloomberg Barclay’s Municipal index, outperformed taxable bonds for the week likely due to the continued strong technical demand for tax-exempt issues.
Natural gas prices gave back this week due to the U.S. Energy Information Association report indicating increased supplies of the commodity in addition to concerns of softening demand. Silver finished lower for the second consecutive week. Year-to-date, both gold and silver are in the red.
Economic Weekly Roundup
CPI In-Line but Producer Prices Exceed Expectations; Claims Show Continued Improvement
Inflation was in focus this week as both July’s Consumer Price Index (CPI) and Producer Price Index were announced. The headline CPI increased 0.5% month-over-month while core CPI, which strips out volatile food and energy components, increased 0.3%. As expected, the temporary drivers of higher prices in previous months have slowed.
July producer prices increased 1.0% month-over-month, which was more than expected, however they matched June’s increase. Most of the increase was concentrated in services such as passenger fares and hotel rooms.
Other highlights from this week’s economic calendar include:
Unemployment claims improved for a second straight week. Initial unemployment claims met expectations while continuing claims fell to below 3 million for the second straight week.
The National Federation of Independent Business (NFIB) Small Business Optimism Index declined in July. Owners’ sales expectations, better business outlook conditions and earnings trend all declined in the July survey. Almost 50% of owners raised their average selling prices.
In past Weekly Market Performance blogs, we have touched upon how hiring conditions have been challenging. In the latest NFIB report, almost 50% of owners reported job openings that could not be filled, which is a 48-year high.
The University of Michigan Consumer Sentiment declined over 10 points month-over-month to its lowest reading since December 2011 as concerns grow about the Delta variant spread as well as the economic outlook.
Next week, the following economic data is slated to be released:
Tuesday: July retail sales, industrial and manufacturing production, June business inventories, National Association of Home Builders August housing market index
Wednesday: July building permits, housing starts, and Federal Open Market Committee minutes
Thursday: Weekly initial and continuing unemployment claims, July leading indicators
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results. All market and index data comes from FactSet and MarketWatch.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
U.S. Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
For a list of descriptions of the indexes referenced in this publication, please visit our website at lplresearch.com/definitions.
This Research material was prepared by LPL Financial LLC.
Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).
Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
Not Insured by FDIC/NCUA or Any Other Government Agency
Not Bank/Credit Union Guaranteed
Not Bank/Credit Union Deposits or Obligations
May Lose Value
For Public Use – Tracking 1-05179814