A Rough Beginning to the Week Ends Positive as Investors Acting Off Strong Q2 Earnings Buy the Dip

Market Recap Week ending 7.23.21

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US Financial markets started the week off much as it had ended the prior week, in the red. A continuation of the peak growth narrative catalyzed further by increased Covid infection rates stemming from the delta variant sent the S&P 500 below its 50-day moving average, the 10-year bond yield to 1.14%, the Russell 2000 into correction mode, and the CBOE volatility index up 36%. However, by Tuesday, investors came in and bought the dip, encouraged by solid second-quarter earnings results and by S&P 500's ability to close above its 50-day moving average. Analyst upgrades in Apple and Microsoft, coupled with positive commentary from executives at United Airlines, Coca Cola, and Chipotle suggesting that the Delta variant had not affected their businesses, sent a bid into the mega-cap stocks. Upbeat earnings results from Snap and Twitter further bolstered sentiment for the mega-cap tech issues.

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The S&P 500 increased 2% for the week while the Dow added 1.1%, the NASDAQ gained 2.8%, and the Russell 2000 rose 2.1%. The US yield curve steepened a bit over the week in a bewildering fashion. The 2-year note yield fell four basis points to close at 0.19%, while the 10-year yield shed one basis point to close at 1.29%. Again, at one point on Monday morning, the 10-year yield was as low as 1.14%, sixty basis points off its most recent highs. Gold prices fell by $13.2 to close at $1801.90. Oil prices increased fractionally, with WTI closing up $0.33 to $72.09 a barrel.

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Economic data results announced over the week generally missed consensus estimates. Initial Claims, which have been trending in the right direction over the last several weeks, came in at 419k, the highest level seen since May. Continuing claims fell 27k to 3.26 million. Preliminary IHS Markit Manufacturing hit a record high of 64.6 in July while the Services reading fell to 59.8 from June's level of 64.6. Building Permits, a leading indicator, fell 5.1% month over month and at an annualized rate of 1.598 millon which was shy of the 1.7 million expected. Lastly, the Conference Board's Leading Economic Index increased at the slowest pace since February, coming in at 0.7% versus the expected 0.9%.

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Second Quarter earnings results will continue to be announced in the upcoming week. The Treasury will auction off 2, 5 & 7 year notes which will be interesting to watch given the recent bond market action. Additionally, expect the FOMC it's policy rate decision on Wednesday afternoon- no change is expected. Still, there may be some language in the decision related to the timing of the Fed's asset purchase program taper.

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Darren Leavitt, CFA

Chief Investment Strategist

With over 20 years of experience in the market, Darren bring a diverse background with multiple areas of expertise. Throughout his career, Darren had held a variety of senior positions including Chief Investment Officer, Chief Financial Officer, Portfolio Manager, Senior Analyst, Senior Trader, and Financial Advisor.

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