Weekly Commentary: August 23, 2021
The Week in Review: August 15 - 21
Markets hit record highs, but trouble may be afoot
Domestic stocks pulled back last week, but not before the S&P 500 hit a new record high of 4,480on Monday afternoon. That same day, the Dow also closed at a record high for the fifth consecutive day, the most in a row since November 2017.
By Tuesday, however, the euphoria was tempered after SEC Chairman Gary Gensler urged caution when investing in Chinese stocks. The reason: signs of an economic slowdown plus regulatory uncertainty and disclosure issues there. Markets were also slowed somewhat by issues closer to home, especially recent signals from Federal Reserve members that they might soon begin tapering their monthly asset purchases. The Fed on Wednesday released minutes of its latest policy meeting, in which most members indicated they thought tapering could begin by the end of 2021.
The market also seemed to be weighed down by growth worries. The Commerce Department reported last week that retail sales were down 1.1% in July. Auto sales (down 3.9%) were a big reason for the slump, although rising COVID-19 cases also seemed to be keeping people at home instead of out shopping. Even spending in the stay-at-home categories like home improvement and online purchases — areas that prospered in the early days of the pandemic — was down. But there was some good news on the spending front: Sales were up at restaurants and bars. Much of that could be attributed to the warm weather and the ability to gather in outdoor seating areas.
Other reports were also mixed. July housing starts fell 7%, much more than consensus expectations, but building permits rose more than anticipated. Initial weekly jobless claims fell to 348,000, a bigger drop than expected and the lowest number since March 2020.
A mess in Afghanistan
As Winston Churchill famously said: "There is only one thing certain about war, that it is full of disappointments and also full of mistakes." Churchill's comment could certainly apply to the situation in Afghanistan, where the withdrawal of American troops has been riddled with disappointments and mistakes. The Taliban took over the country with breathtaking speed, and U.S. Secretary of State Antony Blinken commented about Afghan military forces, "The fact of the matter is we've seen that that force has been unable to defend the country … and that has happened more quickly than we anticipated."
On Friday, President Joe Biden defended his administration's handling of the situation. He said, "… We've made significant progress. We have secured the airport, enabling flights to resume. Not just military flights, but civilian charters and other – from other countries and the NGOs taking out civilians and … vulnerable Afghans." However, later in his statements he admitted that the path forward is still rocky, made even more difficult by the fact that the U.S. has no idea how many Americans and allies may still be left to evacuate – or even where they are currently located in the country.
Events in Afghanistan weighed on markets last week, not only in the U.S. but all over Europe. Officials are concerned about a potential rise in terrorist threats, not only from the Taliban but from a plethora of terrorist groups jockeying to gain control. Sure, hindsight is 20/20, but shouldn't our past experience with terrorist groups from this region have made this an obvious possibility before we withdrew our troops?
The situation could become more fraught throughout the coming week as we approach the Aug. 31 deadline for withdrawal. President Biden has floated the idea of extending the deadline, but the Taliban has pretty much given a big "Nope" to that notion. It could be a rough week for markets as events over there continue to unfold.
Facebook Monopoly? Do not pass "Go" and do not collect $200
The Federal Trade Commission filed an amended antitrust lawsuit against Facebook last week. The argument: that the company "resorted to an illegal buy-or-bury scheme to maintain its dominance." (Basically, the FTC is accusing Facebook of being a monopoly since 2011.) The FTC filed a similar lawsuit earlier this summer, which a federal judge dismissed but gave the agency a chance to revise its arguments. Facebook has until Oct. 4 to respond to the new complaint.
Coming This Week
The whole world will be keeping an eye on the fragile — and potentially combustible — situation in Afghanistan this week.
We'll see more data on existing and new home sales in the first half of the week.
Consumer spending for July will be released Friday. The forecast calls for an increase of 0.3%, compared to the 1.0% increase we saw in June.
After last week's record low in initial weekly unemployment claims, the forecast is calling for the number to stay pretty much flat at 350,000.
Have a fantastic day!
Tom Siomades, CFA®
Chief Investment Officer
AE Wealth Management
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