Weekly Market Commentary August 16th to August 20th 2021
Retail Sales were one of this week’s most important items, and the survey result underscored concerns investors have about product availability and the spread of the Delta variant. Sales fell -1.1% for the month, missing the -0.3% estimate. Sales of building materials and home furnishings were weak, hurting shares of related equities on the news. Restaurant spending was the bright spot, as consumers continue to show higher pent-up demand for experiences rather than goods. Clothing sales have also been weaker than expected coming out of the pandemic, perhaps due to remote work trends.
Industrial Production impressed, rising 0.9% versus a 0.5% prediction and 0.4% prior reading. An increase in auto production thanks to the easing of the semiconductor supply crisis was the big driver, and Capacity Utilization rose faster than expected. Americans’ demand for new cars heading out of the pandemic remains sky-high, though prices continue to creep up.
We also got a slew of housing data, namely Building Permits and Housing Starts. Starts fell 7% for the month to 1.53 million annualized, below a 1.6 million estimate. Finding skilled labor and supplies remains a challenge for homebuilders. Permits were stronger at 1.64 million vs. 1.61 million, as long-term housing shortages and price increases remain an incentive despite other headwinds.
In Manufacturing, the Empire Survey of New York was a disappointment and the Philly Fed survey modestly missed the mark. Both surveys showed rising input prices and accelerating overall activity, albeit at a slower pace than last month. Manufacturers retain positive outlooks as supply and labor shortages seem poised to alleviate, though COVID remains a wild card.
Finally, Initial Jobless Claims came in at 348,000, a bright spot in a fairly tough week for economic news. Claims fell 7% from last week and beat estimates easily. They remain at elevated levels versus the pre-pandemic norm.
Stocks ended the week slightly negative, as the Delta variant and geopolitical (China, Afghanistan) concerns weighed on investors. The S&P 500 fell -0.6% to close the week at 4,442. The NASDAQ was off -0.7% to 14,715, while the Dow skidded -1.1% to 35,120, hurt by banks and energy. The 10-Year Treasury fell 4 basis points to 1.26%, and the 30-Year was lower by 8 basis points to 1.87%. Lower inflation expectations thanks to a more hawkish Fed contributed to the drop.
Next week, we’ll look at New and Existing Home Sales, the PCE Inflation gauge, a few major manufacturing surveys including one from Markit, and receive a 2nd estimate of Q2 GDP.