U.S. and International Equities
Markets Mostly Lower As Utilities and Real Estate Gain Ground
Most major markets sold off this week as Q2 earning season kicks off. Market participants are concerned about how long the “transitory” effects of inflation will last but also that second quarter results from corporate America may be as good as it gets. Lower 10-year Treasury yields drove solid gains for defensive income sectors including real estate and utilities, which topped the week’s sector rankings. Energy stocks gave back over 7%, in one of the sector’s worst weeks this year as West Texas Intermediate (WTI) crude oil lost over 4%.
Fixed Income and Commodities Recap
Core Bonds and Commodities Move in Opposite Directions
The Bloomberg Barclays US Aggregate gained ground this week as yields declined. High yield bonds, as denoted by the Bloomberg Barclays High Yield Bond Index, finished lower this week as stocks fell and as investors likely took some profits following recent gains in a tough year for fixed income. Commodities were mostly lower this week with West Texas Intermediate (WTI), silver and copper pulling back while gold finished the week modestly higher.
U.S. Economic Weekly Roundup
Inflation and its “Transitory” Properties
As has been the case in recent months, inflation, its effects on the economy and Federal Reserve policy have been among the primary concerns for investors in recent days, especially given the plethora of government stimulus put in place to combat COVID-19. The Bureau of Labor Statistics (BLS) released June data for the Consumer Price Index (CPI) and Producer Price Index, both showing that total headline and core inflation (excluding food and energy) increased more than anticipated. June retail sales increased versus May and exceeded the Bloomberg consensus estimate. Federal Reserve (Fed) Chairman Powell’s testimony this week reiterated the transitory nature of inflation as well as the committee is in “active consideration” over when to being tapering asset purchases.
“The story of the week was Mr. Powell goes to Washington to get grilled by Congress,” said LPL Financial Chief Market Strategist Ryan Detrick. “Say what you want about him, but he is holding firm on his view that the recent spike in inflation is indeed transitory and not a major worry.”
In addition, initial unemployment claims fell this week, but missed the consensus forecast from economists. Moreover, the National Federation of Independent Businesses (NFIB) Small Business Optimism Index for June increased ahead of economists’ expectations. This being said, wage pressures along with finding qualified employees continue to challenge small businesses.
Next week, the following economic data is slated to be released:
- Monday: National Association of Home Builders July Housing Market Index
- Tuesday: June building permits and housing starts
- Thursday: Weekly initial and continuing claims, June existing home sales and leading indicators
- Friday: July Markit Purchasing Managers’ Index (PMI)
Earnings season is underway with 79 companies reporting Q2 results next week.
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