Week in Review: August 9, 2021
Recap & Commentary
Markets ended the week higher with the S&P 500 closing at a new record, aided in part by Friday’s strong employment report along with continued strong corporate earnings.
With July’s unemployment report out of the way and second quarter earnings wrapping up, all eyes will now be on the Federal Reserve ahead of its annual Jackson Hole meeting at the end of August. Before the Fed’s July meeting, investors had been hopeful that the central bank would provide greater insight into its tapering plans at the conclusion of its Jackson Hole meeting. However, Federal Reserve Chair Jerome Powell’s comments after the July meeting stating that the Fed will continue discussing its plans during “coming meetings” suggested that the Fed may not provide as much detail in August as investors would have liked.
The seven-day moving average for new coronavirus cases in the US surpassed 100K for the first time since February. While the surge has raised concerns about the economic recovery, currently, there is almost zero likelihood of new national restrictions to slow the spread in part because of limited appetite to do so, but also because nearly 70% of all adults have now received at least one vaccine dose. One silver lining of the recent surge has been a notable increase in vaccination rates in areas that previously lagged with the national average.
Through Friday, 89% of S&P 500 companies had reported second quarter earnings with 87% of those having beaten their consensus estimate. According to industry group Factset, S&P 500 earnings growth is currently on pace to increase 89% from 2Q20.
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.
The Senate ended debate on the $1.2T bipartisan infrastructure bill, increasing the likelihood of its passage. However, the bill’s ultimate fate remains uncertain as it must still be passed by the House before being signed into law.
|U.S. Bond Market||-0.4%|
|10-Year Treas. Yield||1.29%|
|WTI Oil ($/bl)||$68|
The Week Ahead
- Consumer Inflation (CPI)
- Producer Inflation (PPI)
- Consumer Sentiment
- Small Business Optimism
- Weekly Jobless Claims