THE WEEK ON WALL STREET
Stocks were mixed last week amid conflicting economic data and continued spread
of Delta variant infections. The Dow Jones Industrial Average slipped 0.24% during
the five trading days. But the Standard & Poor’s 500 tacked on 0.58% and the
Nasdaq Composite index rose 1.55%. The MSCI EAFE index, which tracks developed
overseas stock markets, gained 1.51%.
Investors gravitated toward the high growth technology and communication
services sectors, as well as the more defensive sectors, such as utilities and real
estate. Reopening stocks were weighed down by Delta variant fears and a retreating
consumer, while energy struggled to bounce in the wake of Hurricane Ida shutting
down energy production and refining capacity. Stocks appeared to shrug off a shaky
employment report on Friday, despite the questions it raised about economic
growth in the months ahead.
After initial jobless claims reached a new pandemic low on Thursday, the August
employment report on Friday came in below expectations as payrolls expanded by
235,000. Adding to the subdued report was a 4% decline in the number of hours
worked by employees. On the positive side, the Friday report showed the
unemployment rate fell to 5.2%, while wage growth rose 0.6% from July and
increased 4.3% from August 2020. The weak employment report may reflect a pause
in hiring due to the Delta variant. It could additionally muddy the outlook for the
Federal Reserve, which has indicated it may begin tapering before year-end. The
uncertain jobs picture may force the Fed to push its tapering start date into 2022.
THE WEEK AHEAD: KEY ECONOMIC DATA
Wednesday: JOLTS (Job Openings and Labor Turnover Survey).
Thursday: Jobless Claims.
THE WEEK AHEAD: NOTABLE COMPANIES REPORTING EARNINGS
Tuesday: Coupa Software, Inc. (COUP), Uipath, Inc. (PATH).
Wednesday: Lululemon Athletica, Inc. (LULU), Gamestop Corporation (GME).
Thursday: Zscaler, Inc. (ZS), Affirm Holdings, Inc. (AFRM).
Friday: The Kroger Co. (KR).
They say markets climb a wall of worry and it would appear that is exactly what we
are seeing. All kinds of “what ifs” are espoused in the media about inflation, the
Delta variant, unemployment, and the like. Yet, the market continues to grind
higher. The government gravy train of extra unemployment ends this week, and it
should be interesting. Now we start to get a sense of whether inflationary trends
really are transitory or not. If inflation is transitory and people go back to work and
supply chains ease and if wage inflation slows it would be a sign the Fed can take its
time with monetary policy. Markets would view this positively, perhaps pushing
even higher in anticipation of a long and drawn-out tapering process. However, if
we see inflation continue to rise it would mean the Fed may have to act sooner and
some areas of the economy wouldn’t like that so much. Something to worry about,
but isn't there always?
I can’t remember a month out of the last 25 years where there wasn’t some calamity
that might befall the markets. However, the market is much, much higher than it
was 25 years ago. So yes, we climb the wall of worry. Sure, there will be a pullback
at some point, maybe even a sizeable one. However, it won’t be the end of the world
(even though the media will make it feel that way) and we will move on again to
greener pastures as we always have. Have a great rest of the week!