THE WEEK ON WALL STREET
Looking past inflation figures and Delta variant trends, stocks last week found a way
to climb higher and set fresh record highs in the process. The Dow Jones Industrial
Average rose 0.87%, while the Standard & Poor’s 500 advanced 0.71%. The Nasdaq
Composite index was flat (-0.09%) for the week. The MSCI EAFE index, which
tracks developed overseas stock markets, gained 0.77%.
Stocks moved higher amid relatively light trading last week. After initially retreating
under the weight of Delta variant updates, stocks grinded higher, catalyzed by the
Senate’s passage of a $1 trillion infrastructure bill. Two themes emerged last week.
The first was that inflation assumed a less threatening profile. The most recent
Consumer Price Index report showed some moderation in consumer price
increases, while investors appeared to interpret a hotter-than-expected Producer
Price Index report as the peak in this inflation cycle. Also worth noting were
comments by multiple Federal Reserve Bank regional presidents suggesting that the
time for tapering (i.e., ending the Fed’s bond purchases) was nearing, with one
intimating that tapering could start as early as October.
Consumer prices climbed at their fastest rate since August 2008, rising 5.4% year-
over-year. But this elevated rate was expected by most economists. The core
inflation rate (excludes the more volatile food and energy prices) came in 4.3%
higher, substantially lower than anticipated. This deceleration in core inflation was
largely attributed to a slowdown in price increases in used cars and apparel. More
unsettling was the following day’s Producer Price Index (PPI). The PPI, which can
be an indicator of future consumer prices, came in at the highest rate since tracking began, surging 7.8%.
THE WEEK AHEAD: KEY ECONOMIC DATA
Tuesday: Retail Sales. Industrial Production.
Wednesday: Housing Starts. FOMC (Federal Open Market Committee) Minutes.
Thursday: Jobless Claims. Index of Leading Economic Indicators.
THE WEEK AHEAD: NOTABLE COMPANIES REPORTING EARNINGS
Tuesday: Walmart, Inc. (WMT), The Home Depot, Inc. (HD), Agilent Technologies,
Inc. (A), Roblox Corporation (RBLX).
Wednesday: Nvidia Corporation (NVDA), Cisco Systems, Inc. (CSCO), Target
Corporation (TGT), Lowe’s Companies, Inc. (LOW).
Thursday: Ross Stores, Inc. (ROST), The Estee Lauder Companies, Inc. (EL).
Friday: Deere & Company (DE).
The Delta variant of Covid is peaking in the southern states right now, but has yet
to peak in the northern states. It appears they may be 2-4 weeks behind us. While
there are a few breakthrough cases (in which they are typically having less severe
sickness) this is largely a pandemic of the unvaccinated. Due to the high level of
contagion it is not a matter of if, but when an unvaccinated person will catch
Covid. Booster shots are already happening as we mentioned about a month
ago. The good news is the market is continuing to look past all of this. Don’t let the
media fool you, this current fire will almost burn itself out once there are fewer
people to infect and we will likely see it become an endemic where one needs a shot
each year, just like the flu. The whole mask thing has been over politicized and
many employers are moving towards the stick rather than the carrot to get
employees to vaccinate.
Meanwhile, corporate earnings are good, people are still spending money and those
who have been milking unemployment will soon be sent back to the workforce as
unemployment benefits sunset in September. Stay tuned…