Telemus Weekly Market Review July 5th - July 9th, 2021
July 5 – July 9 Week in Review
Stocks seesawed up and down during the week finishing to the positive as the S&P 500 and NASDAQ both gained +0.4%. The Dow Jones Industrial Average rose +0.2%. The Russell 2000 index fell for the second straight week, declining -1.1%
The story of the week was the rally in the bond market, as interest rates continued to push lower. Intra-week, the yield on the 10-year Treasury had fallen nearly 20 basis points, or 0.2%, before finishing down 5 basis points. Given that bond prices move opposite interest rates, this resulted in a strong week for bonds as the Bloomberg Barclays U.S. Aggregate index was up +0.3%. Yields on the 10-year Treasury are now down nearly a half percentage point from their late March peak of 1.75%.
We believe the fall in bond yields is due to a confluence of factors. First, the supply of Treasury bonds remains tight given a lack of recent issuance by the Treasury. In addition, the continued pace of purchases by the Fed is restricting the supply of Treasury bonds available to investors in the secondary market. Lastly, we feel fears around a surge in COVID-19 cases due to the Delta variant have some questioning whether the Fed may have to hold off on its normalization path.
Economic datapoints released this week remain positive, but did indicate a slowing in the rate of improvement. The ISM Services PMI reading stood out in this regard as its June reading of 60.1 was quite strong, but decelerated from May’s record reading of 64.0. The JOLTS job statistics continue to show a high number of openings, however the number fell slightly from the prior month. One highly scrutinized economic datapoint was the release of the minutes from the June Federal Reserve Open Market Committee (FOMC) meeting. The minutes indicated robust discussion around the potential for tapering the Fed’s asset purchases.
Stocks reacted to the economic news, with stable growth stocks outpacing the returns of more economically sensitive value names. Of late, growth stocks have become more correlated with Treasury bonds, tending to outperform their value counterparts when interest rates fall. For the week, energy was the worst performing sector, declining over -3%. Financials also fell as lower yields were viewed negatively for the sectors’ ability to grow interest income. On the other end, real estate was the top performing sector within the S&P 500, followed by consumer discretionary and utilities. Large cap technology stocks were able to shrug off a newly announced executive order from President Biden that is calling for broader regulation around competitive practices.
Market breadth, or the number of stocks trading above their 50-day moving average remains low. In fact, the market breadth is the lowest since 1999. This is noteworthy given that the S&P 500 and NASDAQ concluded the week at record highs.
In other markets, commodities received a strong bid, as the Bloomberg Commodity index hit its highest level since 2015. Oil prices climbed higher early in the week after talks among OPEC+ partners broke down. Crude prices then reset the remainder of the week and ended down -0.8% to $74.56 a barrel. Earlier in the week the dollar climbed to a 3-month high, but ended near where it began at 92.10. Gold finished the week at $1,810.00, up 1.5%.
July 12 – July 16 Economic Calendar
NFIB Small Business Optimism
- Consumer Price Index
MBA Mortgage Applications
Producer Price Index
Federal Reserve Beige Book
- Fed Chair Powell testimony to House Financial Service Committee
Initial Jobless Claims
Fed Chair Powell testimony to Senate banking panel
University of Michigan Consumer Sentiment
The ISM Services Purchase Manager Index (PMI), otherwise known as the The ISM Non-Manufacturing Index is an economic index based on surveys of more than 400 non-manufacturing (or services) firms' purchasing and supply executives. The ISM services survey is part of the ISM Report On Business—Manufacturing (PMI) and Services (PMI). The services report measures business activity for the overall economy; above 50 indicating growth, while below 50 indicating contraction. The ISM services report contains the economic activity of more than 15 industries, measuring employment, prices, and inventory levels. The Job Openings and Labor Turnover Survey (JOLTS) program produces data on job openings, hires, and separations; it is produced by the U.S. Bureau of Labor Statistics. The Bloomberg Commodity Index (BCOM) is calculated on an excess return basis and reflects commodity futures price movements. The index rebalances annually weighted 2/3 by trading volume and 1/3 by world production and weight-caps are applied at the commodity, sector and group level for diversification.
Matt joined the Telemus team in 2018. As Chief Investment Officer, he leads the firms the investment process and research effort. Matt has experience as an equity analyst and portfolio manager and has advised corporate pension plans on their manager selection. He’s been quoted in Money Magazine and Barron’s.