Weekly Commentary: August 9, 2021
The Week in Review: August 1 - 7
Heigh-ho, heigh-ho, it’s off to work we go
Last week was a good one for domestic stocks, with large-cap benchmarks and the technology- heavy Nasdaq pushing to new highs despite a shaky start to the week. One reason for the upward push: a rosy jobs report. The BLS Employment Situation report showed that employers added 943,000 jobs in July, well above estimates and the best showing since lockdowns were eased last summer. The unemployment rate also dropped to 5.4% in July, and the number of unemployed people fell to 8.7 million. In addition, April and May gains were revised significantly higher – so pretty much a good report all around.
Positive earnings surprises also helped markets. Some analysts are saying second-quarter earnings for S&P 500 companies could increase by as much as 85% over 2020 and corporate growth is growing at its fastest pace since 2009. Other data from last week was equally encouraging to markets. The Institute for Supply Management’s index of July factory activity showed healthy growth, and the service sector index jumped to 64.1, well above June’s reading of 60.1. This was the largest “beat” in the history of the index, which dates back to 1967.
U.S. Treasury yields jumped Friday morning on the heels of all this positive news. And speaking of jumps, is the Federal Reserve making the leap away from their stance on keeping rates near zero? Comments from Fed Governor Christopher Waller and Vice Chair Richard Clarida last week added upward pressure on rates, with Waller hinting at a potential taper by October. For his part, Clarida said that interest rate increases could come as soon as early 2023.
All of this optimism comes even as the number of coronavirus cases – and the potential for more lockdowns – increases. New COVID cases in the U.S. hit a six-month high last week, with the spike coming just as schools are scheduled to reopen. The higher case rates have already caused some companies to postpone return-to-the-office plans until late 2021 and early 2022. Improvement in our job rates could stall if parents have to juggle working from home and hit-or-miss school or daycare for another school year.
Infrastructure deal is close at hand
The Senate worked through the weekend on the$1 trillion infrastructure bill. A few senators threw a twist in the bill last week, introducing anamendment calling for stricter tax rules on cryptocurrencytransactionsand requiring digital asset brokers to report on trading gains. Critics say the language of the amendment is too broad, particularly the definition of a broker, and say the broader definition means more crypto investors could be subject to the higher taxes. Still, the infrastructure bill is inching forward, and the Senate is set to vote on it soon.
Coming this week
Regional Fed officials are scheduled to speak throughout the week. Will they give us more clues about when to expect rate increases?
This week’s data will include the Consumer Price Index on Wednesday and the Producer Price Index on Thursday.
As mentioned above, the Senate should vote on the infrastructure bill early this week. As soon as that’s done, they’ll most likely start work on the administration’s next objective: the proposed$6 trillion budget for 2022.
Have a fantastic day!
Tom Siomades, CFA®
Chief Investment Officer
AE Wealth Management
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