Week in Review: August 16, 2021

A mixed week for equity markets saw the S&P 500 grind higher, once again ending at a new record high. Concerns about the rapidly spreading coronavirus Delta variant weren’t enough to overcome investor optimism about strong corporate earnings, the passage of a bipartisan infrastructure bill, and signs that inflation may in fact be peaking.

As expected, the Senate passed a sweeping $1T infrastructure bill, by a 69-30 vote. The bill, which includes ~$550B of new spending, will provide billions in funding for roads, bridges, public transit, railroads, broadband internet access and electric vehicles, among other priorities.

The seven-day average of new coronavirus cases in the U.S. reached 129K, the highest level since early February. The surge in new cases is occurring just as schools are starting a new school year and businesses were increasingly bringing workers back to the office. This is renewing concerns about how smoothly the economy can run if those plans are derailed. While new nation-wide restrictions are highly unlikely, there are concerns that consumer confidence could suffer in the face of surging cases. That appeared to happen in the first half of August as the University of Michigan’s consumer sentiment index experienced its seventh largest drop on record dating back to the mid 1960s. Such a sharp drop could presage a near-term pullback in consumer spending.

Through Friday, 91% of S&P 500 companies had reported second quarter earnings. Thus far, 87% have beaten their earnings estimate. According to industry group Factset, aggregate earnings are forecasted to increase 89%.