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Week in Review: July 26, 2021

Recap & Commentary

Markets ended the week with the S&P 500, Dow Jones Industrial Average, and NASDAQ all setting new record highs.  Such an outcome seemed unlikely at the start of the week after concerns about the rapidly spreading coronavirus Delta variant resulted in the S&P declining nearly 1.6%, its largest single-day loss in two months, and the Dow falling over 2%, its largest single-day decline of 2021.

In response to the selloff, the 10-Year Treasury yield briefly fell to 1.13%, its lowest level since February. However, by week end, whatever concerns markets had at the start of the week appeared to have been forgotten, or at least temporarily set aside.

While it seems unlikely that wide scale lockdowns will be revisited, already various cities and countries are taking steps to try to slow the spread of the Delta variant. In some cases these actions are putting additional strain on global supply chains already struggling to cope with unprecedented demand. With markets at record highs, and valuations still above longer-term averages, market volatility may well remain elevated in the near-term, susceptible to headlines about the spread of the Delta variant and supply chain pressures.

Through Friday, 24% of S&P 500 companies had reported 2Q21 earnings.  Thus far, 88% have exceeded their earnings estimate, while 86% have exceeded their revenue estimate. According to research firm Factset, 2Q21 earnings are currently on pace to increase by 74% compared to a year ago.

Economic Bullet Points

The housing sector perked up some in June with both starts and existing home sales increasing from their May levels. However, housing remains caught in a struggle between strong demand and historically low mortgage rates vs. expensive building materials and shortages of land and labor.

Housing starts rose 6.3% in June, but remain below their March levels, which were the highest since 2006. During the first half of the year, soaring lumber prices generated numerous headlines. Of late, a ~70% decline from early May, has also generated headlines. While that has relieved some near-term pressure on builders, lumber prices remain 125% higher compared to a year ago.

Building permits declined 5% in June, falling to an eight-month low. Viewed as an indicator of future building activity, the decline suggests that near-term activity will likely remain choppy, albeit elevated from 2020 levels.

Existing home sales rose a modest 1.4%, snapping four consecutive months of declines. Continued strong demand helped drive the median home price to a new record of $363.3K, up 23.4% from a year ago.

Preliminary data from industry group IHS Markit showed that US economic activity remained strong in the first half of July, though consistent with other economic indicators, growth may have peaked in 2Q20. One interesting note from the survey was that both input and selling prices declined for the second consecutive month, suggesting the inflationary pressures may be peaking.

Of Note

The National Bureau of Economic Research declared that the pandemic-driven recession that began in February 2020 ended two months later in April, making it the fastest economic recovery in the United States’ history.

S&P 5002.0%
Small Caps2.2%
Intl. Developed0.2%
Intl. Emerging-2.2%
Commodities1.3%
U.S. Bond Market0.2%
10-Year Treas. Yield1.27%
US Dollar0.2%
WTI Oil ($/bl)$72
Gold ($/oz)$1,801

The Week Ahead

  • New Home Sales
  • Pending Home Sales
  • Core PCE Inflation
  • Consumer Spending
  • Personal Income
  • Durable Good Orders
  • Consumer Confidence
  • Weekly Jobless Claims

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