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Week in Review: August 20, 2021

Recap & Commentary

Equity markets ended the week lower, weighed down by a number of factors including growing concerns about the spread of the coronavirus Delta variant, disappointing U.S. economic data (retail sales), and uncertainty surrounding the U.S. Federal Reserve and monetary policy.

Despite its weekly decline, on Monday the S&P 500 gained 0.1%, enough to increase its return from its pandemic low on March 23, 2020 to 100%. In total, it took the venerable index 353 trading days to reach that milestone, the second fastest such occurrence, trailing only the 85 trading days it took back in 1933.

The Fed released the minutes from its July Federal Open Market Committee (FOMC) meeting and, as expected, there was a robust conversation regarding tapering its current asset purchases. While most participants felt the price-stability aspect of the Fed’s dual mandate has been met, most participants felt that further improvement was needed to achieve its maximum employment mandate. Regarding the timing of tapering, the majority of participants felt that it would be appropriate to start this year with some believing that it should start in the “coming months.” However, several others felt that given current conditions it would be more appropriate to delay tapering until “early next year.” For the most part markets took the news in stride; certainly much better than the “taper tantrum” of 2013.

Oil fell 9%, its largest weekly decline in nine months, amid concerns about demand destruction stemming from the spread of the coronavirus Delta variant. Oil prices are now down 17% from their mid-July peak of $75.

Economic Bullet Points

Retail sales fell 1.1% in July, far more than the expected 0.3% decline. Core retail sales (excluding automobiles) declined 0.4%, versus an expected gain of 0.1%.  Motor vehicles and parts were the largest drag on sales, declining 3.9%, likely the result of ongoing shortages caused by global supply chain issues. Despite concerns about the Delta variant, food service and drinking places saw sales increase 1.7%, suggesting that consumers are still willing to eat out. Compared to a year ago, headline retail sales increased 15.8% while sales at food service and drinking places increased 38.4%.

Housing starts declined 7.0% in July to an annualized pace of 1.53M, a three-month low. Expectations had been for a more modest decline of 3%.  As has been the case for a while, builders remain hampered by elevated prices for building materials and limited supplies of labor and land. Permits, often considered a leading indicator of future building activity, rose a better than expected 2.6%.

Industrial production rose 0.9%, aided by a 1.4% increase in manufacturing, which in turn benefitted from an 11.2% increase in motor vehicle and parts production. Despite the increase, auto manufacturing remains 3.5% below its recent peak in January.

Weekly jobless claims fell to a new recovery low of 348K, providing hope that recent concerns about the Delta variant are not impacting the labor markets.

Of Note

In a move that follows similar announcements by Ford and GM, Toyota announced that it will cut its September production by 40% and is temporarily shutting down some factories due to a shortage of semiconductors.

S&P 500-0.6%
Small Caps-2.5%
Intl. Developed-3.0%
Intl. Emerging-4.7%
Commodities-4.2%
U.S. Bond Market0.2%
10-Year Treas. Yield1.26%
US Dollar1.0%
WTI Oil ($/bl)$62
Gold ($/oz)$1,782

The Week Ahead

  • Markit PMI
  • Existing Home Sales
  • New Home Sales
  • Durable Goods Orders
  • PCE Inflation
  • Consumer Sentiment
  • Weekly Jobless Claims

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