U.S. and International Equities
Most of the U.S. and international markets were fractionally higher this week as traders were concerned about a potential peak in the global recovery, declining bond yields, as well as the rising cases of the Delta COVID-19 variant worldwide. US small cap (Russell 2000), developed international (MSCI EAFE), as well as emerging market (MSCI EM) equities are down over 2% over the past month. International equities have pulled back as the US dollar has rebounded and small caps have suffered as some traders believe the current economic revival may be short-lived.
Value Stocks Pullback
Real estate was this week’s top performing sector, benefiting from lower bond yields as well as the rebound in commercial real estate. For the second week in a row, the value style lagged in comparison to its growth counterparts. Value-heavy energy, the top performing sector year to date, was this week’s worst performer. In addition, this sector along with materials and financials have lagged the S&P 500 index over the past month.
Fixed Income Recap
The Bloomberg Barclays US Aggregate gained ground this week as yields fell. For the second week in a row, all fixed income sectors moved in lockstep as fixed income investors continue to take solace in the Fed’s policy stance concerning inflation. In addition, economic growth concerns may have weighed in on investor’s minds as well. Both the corporate and muni high yield sectors continue to outperform in what has, so far, been a down year for many fixed income categories.
“The big drop in yields was the story of the week,” according to LPL Financial Chief Market Strategist Ryan Detrick. “Does the bond market know something the rest of us don’t know? As of now the recovery is alive and well, but our antenna is perked up and we’ll be watching the action in yields very closely.”
Commodities were mixed amid this week’s market pullback. WTI Crude sold off a fraction to finish the week near $74.50 per barrel. Natural gas, which is up over 45% this year, all pulled back fractionally this week. Moreover, gold and copper finished the week higher while silver pulled back. Both gold and silver are solidly in the red year-to-date.
U.S. and International Economic Data Recap
Global PMI Shows Strength
June’s Global Purchasing Managers’ Index (PMI) continued to show solid economic growth worldwide. The Manufacturing PMI has been in expansion territory for a year while the Services PMI came in stronger than the manufacturing PMI. The Services PMI, until recently, had trailed the manufacturing PMI since the onslaught of COVID-19.
ISM Services Slips
June’s U.S. Institute for Supply Managers’ (ISM) Services Index came in a bit softer than expected and below May’s reading. Respondents were positive on many components of the index, such as remaining order backlog, along with pricing power. However, availability of labor remains a concern.
The Federal Open Market Committee (FOMC) meeting minutes were released this week. The manuscript showed that the FOMC is split on tapering. Several members advocated tapering purchases of mortgage-backed securities (MBS) given elevated housing prices. Others preferred tapering both Treasuries and MBS at the same time. The next FOMC meeting is at the end of July where we expect more to be discussed on this topic.
Unemployment Claims Remain Steady
This week initial claims for unemployment insurance were reported slightly higher than expectations. Continuing claims declined below 3.4 million which slightly edged the Bloomberg consensus forecast. The four week moving average of initial claims, which has declined since February, has begun to level off over the past month. This may be a sign that achieving additional improvement may become more challenging.
Next week, the following economic data is slated to be released:
- Tuesday: June National Federation of Independent Business (NFIB) Small Business Index, Consumer Price Index (CPI), Treasury budget and workweek statistics
- Wednesday: June Producer Price Index (PPI)
- Thursday: Weekly initial and continuing claims, June manufacturing, capacity utilization, and industrial production
- Friday: June retail sales and University of Michigan Sentiment, May business inventories
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