Global equity markets finished higher for the week. In the U.S., the S&P 500 Index reached record highs during Friday’s session and closed the week at a level of 4,437, representing a gain of 0.96%, while the Russell Midcap Index moved 0.70% higher last week. Meanwhile, the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned 0.98% over the week. International equity performance were also higher as developed, and emerging markets returned 1.05% and 1.18%, respectively. Finally, the 10-year U.S. Treasury yield ticked lower, closing the week at 1.31%.
Last week saw a series of important economic news items that are likely to affect the overall markets for the remainder of 2021. It certainly did not feel like a typical slow summer week in August as second-quarter corporate results were a constant source of news throughout last week. The Nation’s employment picture was further defined with several updates, but most importantly the release of the July Employment report by the Department of Labor on Friday. Lastly, the week was full of Capitol Hill drama, as the Senate worked its way towards a bipartisan infrastructure spending bill. We will examine each of these important items in detail throughout the remainder of this update.
Corporate earnings season is reaching the latter innings and it can be declared a blowout. FactSet reports that as of August 6, 2021, 89% of companies in the S&P 500 companies have reported actual results, 87% of reporting companies have reported a positive EPS surprise and 387 S&P 500 companies have reported a positive revenue surprise for Q2 2021. These outstanding results are causing the analyst community to increase estimates for many S&P 500 companies. During the month of July, analysts increased earnings estimates for companies in the S&P 500 for the third quarter of 2021 by 3.6%. This increase is the second-largest increase since the beginning of 2019.
The Nation’s employment status has been a key economic factor throughout the pandemic. Employment volatility caused by shut down orders to battle COVID-19 has affected the global economic landscape. Globally, production and consumption have been affected by our Nation’s employment status. Because the status of our economy is so dependent on employment, we monitor the employment reports very carefully. On Thursday, the Department of Labor (DOL) reported data for the week ended July 31. Continuing claims showed a sharp dip to 2.93 million, the lowest level since March 2020 during the start of the pandemic. The July employment report was then released on Friday showing that unemployment fell to 5.4% from a prior rate of 5.9% in June. Thie results outperformed the consensus estimate of 5.7%. Lastly, July saw the creation of 943,000 new jobs, over 11.5% higher than expected. As a result of all of these data updates, it would be fair to surmise that the Delta variant of COVID-19 is not hampering employment, at least through the end of July.
Last week’s news cycle was full of stories from Capitol Hill concerning the ongoing negotiations around an infrastructure spending package. At this point, we believe that it is likely that some form of a compromise will be reached on the infrastructure spending bill, allowing the bill to be approved by the Senate prior to its scheduled recess from August 9 through September 10. Passage in the House of Representatives will most likely occur in mid-September, as it too has a scheduled recess. As it stands now, it appears that the new infrastructure spending bill will include, at a minimum, approximately $550 billion of traditional infrastructure spending in the areas of roads, bridges, airports, ports, electric vehicle charging stations, internet, water systems, and power. In our view, the passage of this bill creates potential growth and income opportunities for investment consideration.
All of these economic developments are important factors for investors to consider when managing their investment portfolios. We encourage investors to work with experienced financial professionals to help build and manage the asset allocations within their portfolios consistent with their objectives, timeframe, and tolerance for risk.
Best wishes for the week ahead!
Employment statistics are from the U.S. Department of Labor. Equity Market and Fixed Income returns are from JP Morgan as of 7/16/21. Rates and Economic Calendar Data from Bloomberg as of 7/16/21. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index, U.S. Large Cap defined by the S&P 500. Sector performance is measured using the GICS methodology.
Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion and Walsh cannot guarantee the accuracy of said information and cannot be held liable. You cannot invest directly in an index. Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against a loss.
Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against loss.
Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.
Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.
Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than the original cost upon redemption or maturity. Bond Prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.
MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.
MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.
Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.
ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.
ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.
Investors cannot directly purchase any index.
LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.
The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.
The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.
DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITs that primarily own and operate income-producing real estate.