Market Update: August 30, 2021
Photo by Johny Goerend on Unsplash
Economic data for the week included some improvement in prior-quarter GDP, continued gains in personal income and spending, decent home sales figures, while durable goods and consumer sentiment were little changed.
Global equity markets gained last week, as formal Pfizer vaccine approval appeared to raise hopes for continued improvement in world vaccination rates. Bonds were little changed in the U.S., but fared well abroad from a weaker U.S. dollar. Commodities gained due to the same currency effect and jump in crude oil prices, along with the Afghanistan terror attack and impending Gulf Coast hurricane.
U.S. stocks reversed their negativity of the prior week, by gaining ground across the board—led by small caps up 5%. It appeared the FDA’s full approval of the Pfizer-BioNTech Covid vaccine helped general sentiment, as it could provide a stronger support for acceptance rates and backing for public/private mandates. By sector, cyclicals outperformed, with energy gaining over 7%, followed by financials and materials. Defensive stocks—consumer staples, utilities, and health care—suffered minor declines for the week.
Fed chair Jerome Powell’s presentation at the virtual Jackson Hole conference was largely assumed to contain hints about the future ‘tapering’ path. Being scripted, it largely met expectations, as he noted substantial improvement in the economy and labor markets—albeit conditions still not yet back to normal. Notably, reversing course too early was described as being particularly ‘harmful’. This is in keeping with a possible announcement of tapering later this year (Nov. or Dec.). Powell did remind viewers that a pullback in accommodative bond purchases does not necessarily align with interest rate hikes, which were described as a second step with a much higher threshold for action.
Foreign stocks gained along similar lines to U.S. equities, with a weaker dollar not providing a strong tailwind. In Europe, sentiment continued to improve, along with manufacturing sentiment readings—similar to those in the U.S. although a few quarters behind in the cycle. Along with risk-taking generally, emerging markets bounced back last week. This included strong gains in the commodity-sensitive group of Brazil and South Africa, while China also recovered.
U.S. bonds were generally flat, with yields ticking up slightly on the longer end of treasury curve. High yield and bank loans outperformed, earning slightly positive returns. A weaker dollar benefited foreign developed and emerging market debt—especially EM local bonds, most sensitive to currency fluctuations. South Korea became the first developed nation to raise interest rates in the current Covid cycle, by 0.25% to 0.75% last week, with inflation expectations only having ticked up to just over 2%. Per the central bank, the focus in doing so is to reduce financial imbalances (like asset bubbles).
Commodities saw gains in every sector last week, helped by the U.S. dollar down around a percent. Energy outpaced more modest gains in metals and grains, as the price of crude oil recovered by over 10% to near $69/barrel. Expectations of OPEC+ output increases, which can often temper pricing, were offset by the attack on U.S. forces in Afghanistan, which brought back terrorist fears. This was in addition to the expected weekend landfall of Hurricane Ida into the Gulf Coast, assumed to result in infrastructure damage and outages, with nearly half of U.S. refining capacity based in that region.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.