Week in Review: August 2, 2021

Equity market returns for the week were mixed as multiple factors – corporate earnings, economic data, the Fed, infrastructure, China, the Delta variant – jostled for investor attention.

A surge in new coronavirus cases, including “breakthrough” cases, led the CDC to recommend that people wear a mask in public settings in areas of substantial or high transmission, areas that account for over 75% of the US population. While there are no expectations that large scale restrictions will be reinstituted, the rapid spread of the Delta variant may impact economic activity, particularly to the extent that it alters consumer behavior.

As expected, the Fed made no changes to monetary policy at its July meeting.  Speaking afterwards, Federal Reserve Chair Jerome Powell stuck to his well-worn talking points that current inflation largely reflects “transitory factors” and that the Fed is unlikely to make any significant changes to monetary policy without additional improvement in labor markets. As for tapering its current asset purchases, Powell stated that the Fed took a “first deep dive” on how to approach tapering and will continue the discussion at “coming meetings.”

The Senate moved forward on a $1T infrastructure bill that would include ~$550B of new spending. While final passage remains uncertain, the current bill appears to have broad bipartisan support, increasing its chances of passing.

Through Friday, 59% of S&P 500 companies had reported 2Q21 earnings. Thus far, 88% have beaten their estimates. According to industry group Factset, 2Q21 earnings are on pace to increase 85% from 2Q20.