08|03|2021

Holding the Economy at Bay | July 30, 2021

AUTHOR: Jason Roque, CFP®, APMA®, AWMA®
TITLE:   Investment Adviser Rep – CCO
TAGS: S&P 500, NASDAQ, CPI, PPI, Oil, Retail Sales, Sentiment
  

Markets lost ground for the second week. Does this say more about the last two weeks or the week ahead?

Monday                       S&P 500 0.11% | NASDAQ 0.41%

Markets opened the week in a muted tone. There was very little movement as Consumer Price Index (CPI) data was awaited on Tuesday.

Tuesday                        S&P 500 1.12% | NASDAQ 1.54%

CPI data for February showed inflation inching up slightly. Markets opened in the red on the news, but an earnings beat by Oracle allowed equities to march higher.

Wednesday                 S&P 500 0.19% | NASDAQ 0.54%

Crude oil inventories fell when a surplus was expected, which will further support higher prices for energy. Interest rates climbed on the back of the higher than expected CPI data from Tuesday. Growth stocks lagged as the data implies the Federal Reserve Board (FRB) will be less likely to cut rates.

Thursday                     S&P 500 0.29% | NASDAQ 0.30%

The Producer Price Index (PPI), a wholesale inflation gauge, rose in February to 1.6%. Retail sales advanced less than expected and initial jobless claims remained benign. A strong jobs market with firming inflation does not bode well for future rate cuts. Markets sold on the news, though not aggressively, as hope remains for FRB rate cuts later in the year.

Friday                          S&P 500 0.65% | NASDAQ 0.96%

Consumer sentiment is projected to fall to 76.5 in March from 76.9 in February. While lower, February and March are the first readings in the 70’s since August of last year. The week closed out on a sour note as commodity prices rise with inflation data. Further concerns mount that the inflation fight may have longer to go before a rate cut.

Conclusion                  S&P 500 0.13% | NASDAQ 0.70%

This is the first back-to-back losing weeks for the market in 2024. This leads to an FRB meeting week where guidance about potential future rate cuts will be hotly watched. Not only is the FRB meeting next week, but there is very little in the way of economic data for the week. This puts all the more focus on the FRB. 

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Markets were little changed last week, but the economic calendar was not light. What’s holding markets at bay?

Monday

Markets gained on Monday as the week got underway. The move was broadly bullish. We saw safe haven assets retreat while risk assets gained a bid. This rise on Monday led to record closes for many indices. While bullish, gains were meager as markets await the results of the Federal Reserve Board (FRB) meeting later this week.

Tuesday

The red-hot housing market continues to gain value as home prices rose 18% over the last 12 months. Markets pulled back from their record highs on Tuesday as durable goods orders missed expectations. On a positive note, the CB consumer confidence measure remained high at 129.1. It was expected to fall to 123.9.

Wednesday

Markets struggled to find their north early as they awaited the results of the FRB meeting. Nothing changed after the FRB meeting was over. The S&P 500 was little changed on the day. The Russell 2000 gained 1.5% on the day, however.

Thursday

Investor sentiment was buoyant on Thursday as markets rose. They did so on news that US GDP rose 6.5% for the second quarter. That gives us two consecutive quarters with GDP in excess of 6%! Additionally, new jobless claims fell to 400K.

Friday

Markets gave back the gains from Thursday and ended lower on the week. The S&P 500 lost appx .3% for the week on news that inflation pressures are persisting.

Conclusion

The rise in GDP and inflation creates a recipe (at the surface) of sooner than anticipated rate hikes from the FRB–a decision which would tamp down growth and subsequently, inflation. The FRB is acutely focused on the longevity associated with current inflation, which they view as temporary. Should it persist beyond the next several months, we may see rate increases sooner than desired.

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Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long-term holding strategy is the best strategy in any market environment.
Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.