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Week in Review: August 16, 2021

Recap & Commentary

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%.

Economic Bullet Points

July nonfarm payrolls surprised to the upside adding 943K new jobs, 73K more than expected. In addition to July’s strong report, the previous two months were revised upwards by a total of 119K. The strong gains coupled with little change in the labor force participation rate resulted in the unemployment rate falling 0.5%, to 5.4%, better than the expected 5.7% rate. Leisure and hospitality again saw large gains, adding 380K new jobs. Wages rose 0.4%, the same pace registered in June and 0.1% better than expected. Compared to a year ago, wages increased 4.0%.  Overall, the report helped assuage some of the concerns about businesses’ inability to fill open jobs.

Data from industry group ISM showed that both the manufacturing and services sectors continued to experience strong growth during July. Growth in the service sector set a new record high for the series dating back to 1996, surpassing the previous record high set in May 2021. After experiencing a slight contraction in June, employment for both sectors increased in July. Prices paid remained very strong. However, while the services sector rose to its second highest level of record, manufacturing saw prices ease some, providing further evidence that the recent surge in prices may be peaking. New orders for both sectors remained very strong, a positive for third quarter economic growth.

Of Note

The Senate ended debate on the $1.2T bipartisan infrastructure bill, increasing the likelihood of its passage. However, the bill’s ultimate fate remains uncertain as it must still be passed by the House before being signed into law.

S&P 5000.9%
Small Caps1.0%
Intl. Developed1.0%
Intl. Emerging1.2%
Commodities-1.7%
U.S. Bond Market-0.4%
10-Year Treas. Yield1.29%
US Dollar0.7%
WTI Oil ($/bl)$68
Gold ($/oz)$1,764

The Week Ahead

  • Consumer Inflation (CPI)
  • Producer Inflation (PPI)
  • Consumer Sentiment
  • Small Business Optimism
  • Weekly Jobless Claims

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