Uncertainty as to where we are in the Economic Cycle brings a Volatile Week to Equity and Fixed Income Markets
Market Recap Week ending 7.9.21
The holiday-shortened week produced significant swings in the equity and fixed income markets as investors continued to contemplate where we are in the economic cycle. The peak growth narrative appeared early in the week on the back of a weaker than expected ISM non-manufacturing print. Later in the week, China’s central bank signaled that it would be relaxing reserve requirements on banks to induce more lending activity. Concerns over the new Delta variant of COVID and the possibility for further lockdown measures instilled additional economic growth concerns.
On that front, Japan extended lockdown protocols and announced that there would not be any spectators at Olympic venues. Emerging markets issues lag other markets as Chinese regulators tightened their grip on Chinese companies listed in the US. DIDI, a ride share service in China, came public late last week only to see regulators curtail their offering on App sites- the news sent shares significantly lower. OPEC, which had extended last week’s meeting, was unable to agree on supply which helped propel Oil above $76 a barrel.
Despite the volatile week, the S&P 500 was able to forge a new all-time high. The S&P 500 gained 0.4%, the Dow added 0.2%, the NASDAQ rose 0.4%, and the Russell 2000 shed 1.1%. The yield curve continued to flatten as the 2-year note yield fell three basis points to 0.21%, and the 10-year fell seven basis points to close at 1.36%. Of note, the 10-year yield traded as low as 1.24% as short covering came into the market. Gold prices increased 1.3% or $24 to close at $1810.70 an Oz. Oil trade was also quite volatile on the back of a failed OPEC meeting and growth concerns. WTI closed fractionally lower, losing $0.36 to $74.56a barrel.
The weak ISM non-manufacturing print highlighted economic data for the weak. July’s number came in at 60.1 below the consensus estimate of 62.5 and below the June reading of 64. Initial claims for the week regressed a bit to 373K versus expectations of 343K, while Continuing Claims continued to move in the right direction at 3.329 million. Finally, the FOMC minutes came in with no surprises.