THE WEEK ON WALL STREET
Despite a good start to earnings season and some solid economic data, worries of
slower second-half economic growth led to a pullback in stock prices last week. The
Dow Jones Industrial Average fell 0.52%, while the Standard & Poor’s 500 lost 0.97%.
The Nasdaq Composite index sank 1.87% for the week. The MSCI EAFE index, which
tracks developed overseas stock markets, was flat (-0.06 %).
STOCKS RETREAT
Stocks weakened amid an active week of news, including two important inflation reports,
Congressional testimony from Fed Chair Jerome Powell, a string of economic reports, and
the start of the second-quarter earnings season. The earnings season began on a strong note
as 95% of the first S&P 500 constituent companies to report checked in with “earnings
above estimates” by an average of 22%. Despite these above-expectation earnings, stocks
moved little on the results. Bond yields continued to trend lower amid Powell’s testimony
that monetary policy would remain unchanged. A decline in consumer sentiment fed worries
of economic slowdown, leading stock lower and cementing losses for the week.
HOT INFLATION
The Consumer Price Index (CPI) jumped 5.4% in June, representing the biggest monthly
gain since August 2008. The core CPI, which excludes food and energy, increased 4.5%,
which was the fastest pace since September 1991. The CPI report was followed by the
Producer Price Index, which surged 7.3% from a year earlier, outpacing May’s jump of
6.6%. Higher wholesale prices were primarily attributed to increased commodity prices
and labor costs.Fed Chair Powell, in Congressional testimony subsequent to these reports,
reiterated his position that the accelerated inflation of recent months will be temporary.
THE WEEK AHEAD: KEY ECONOMIC DATA
Tuesday: Housing Starts.
Thursday: Jobless Claims. Existing Home Sales. Index of Leading Economic Indicators.
Friday: Purchasing Managers Index (PMI) Composite Flash.
THE WEEK AHEAD: NOTABLE COMPANIES REPORTING EARNINGS
Monday: International Business Machines (IBM), J.B. Hunt Transport Services, Inc.
(JBHT), Prologis, Inc. (PLD).
Tuesday: Netflix (NFLX), HCA Healthcare (HCA), Chipotle Mexican Grill, Inc. (CMG).
Wednesday: Verizon (VZ), Johnson & Johnson (JNJ), The Coca-Cola Company (KO),
United Airlines (UAL), Texas Instruments, Inc. (TXN), CSX Corporation (CSX), Novartis,
AG (NVS).
Thursday: AT&T (T), Intel Corporation (INTC), Twitter, Inc. (TWTR), Snap, Inc. (SNAP),
Abbott Laboratories (ABT), American Airlines (AAL), Southwest Airlines (LUV),
Union Pacific (UNP), FreeportMcMoran (FCX), D.R. Horton, Inc. (DHI).
Friday: American Express (AXP), Honeywell International (HON), NextEra Energy (NEE),
KimberlyClark Corporation (KMB).
FINAL THOUGHTS
As of this writing the markets are down a fair amount mostly due to the fear mongering
of the news media. The Delta variant of Covid-19 is all you will see on the news for the
next few weeks as cases spike. Guess what, what they don’t tell you is that most vaccinated
people or people who have already had Covid and have antibodies don’t get it and of the
very few (as a percentage of those vaccinated or have antibodies) who do, none have died
and only a handful even had to go to the hospital. Yes, those whom are unvaccinated should
worry because they will get it. It is highly contagious. However, the good news is this will
sort of be an “involuntary vaccination” cycle. These folks will get Covid and then have the
antibodies for a while going forward. There will not be lockdowns in the U.S. and our way
of life will continue. I suspect in the next month this wave will pass and we’ll be moving on
to something else.
There are tons of earnings reports this week. Pay attention to those and not the reckless news
media that opine over Covid and that the market may fall a whole 5% from all time highs.
Think about where this economy will be 6 months or a year from now as businesses get back
on track and the consumer hits his stride. Sure there are inflation and interest rate worries,
but those worries are always there and have been my whole career. Nonetheless, the market
has gone up exponentially over that time. Hang in there and turn off the clowns on the news.
They really only care about ratings which drive their ad costs. Good news doesn’t sell ads.
The great Wayne Gretzky said “I don’t not skate to where the puck has been, I skate to where
it is going to be.” There couldn’t be a better parable for investing.
Make it a great week!
