July 23, 2021

Weekly Market Commentary July 19th to July 23rd 2021

Housing data dominated a quiet week for economic releases. Housing Starts (1.64 million annualized) beat estimates and rose 6% from last month, while Building Permits, a more forward-looking indicator, missed estimates and fell 5%, coming in at 1.6 million annualized. Housing data has been mixed lately, as homebuilders deal with shortages of raw materials and labor as the economy reboots, although lumber prices have dropped dramatically in the last few weeks. There’s also the potential for housing demand to slow as the COVID situation improves and workers return to urban centers. A report on Existing Home Sales missed estimates (5.86 million annualized vs. 5.94 million projected), though sales rose from the prior month and inventory crept up.

The lone regional manufacturing survey this week came from the Kansas City Fed, which covers a range of midwestern and western states. The survey showed that demand remains high for products from metals to transportation equipment to computers. However, workers and raw materials are proving hard to come by. 89% of firms reported supply chain issues and 91% reported labor shortages, though employment continued to tick up at a steady pace. Friday’s Markit Manufacturing PMI report came in slightly above expectations at a sizzling 63.1 reading. The accompanying Services sector report disappointed (59.8 vs. 64.3 expected) due to a lack of capacity for businesses to meet demand and rising fears of inflation among consumers. It also reflects the fading impact of government stimulus on retail spending.

Initial jobless claims surprised many by coming in at 419,000, versus estimates in the 350,000 range. There is some bumpiness in the data as states report the numbers at different intervals and it is important to remember that the general trend remains downward, and the 4-week average of 385,000 was unchanged. However, weekly claims remain at nearly twice the level as they were before the pandemic.

Equities shrugged off mixed economic data, as the S&P 500 closed at an all-time high of 4,412, up 2% on the week. The NASDAQ was up 2.8% to 14,837, and the Dow Jones rose 1.1% to 35,062, both records. The yield on the bellwether 10-Year Treasury fell slightly to end the week at 1.28%.

Next week’s notable economic data releases include New Home Sales, Durable Goods Orders, Q2 GDP, as well as an FOMC announcement and Jerome Powell press conference on Wednesday.