July 30, 2021

Weekly Market Commentary July 26th to July 30th 2021

Gross Domestic Product (GDP) in the U.S. grew by an annual rate of 6.5% in the second quarter, driven by consumer spending at reopened businesses. While the reading was below lofty economist expectations, it is a stellar rate of growth showing continued recovery from the short-lived recession of last year and well above pre-pandemic levels. Inventory depletion restrained the reading by -1.1% as companies struggle to replenish through persistent supply chain bottlenecks and labor challenges. Businesses continue to spend on equipment to help bolster production, adding a tailwind to economic growth.

Durable Goods Orders in June fell short of the 2.2% consensus, coming in at 0.8%. The prior month was revised higher from 2.3% to 3.2% evening out some of the miss from one period to another. The less noisy reading of Nondefense Capital Goods ex-aircraft has risen steadily throughout the quarter and added another 0.5% in June. New orders are outpacing shipments as supply chain bottlenecks continue to limit the ability of manufacturers to restore capacity.

New Home Sales missed the mark, falling -6.6% to 676k in June from a revised 724k in May. This is well off the 993k pace from January. Rapid price increases seem to be having a cooling effect on more expensive new homes. Buyers armed with attractive mortgage financing may be looking toward lower priced existing homes, where bidding wars continue to be the norm.
The Federal Open Market Committee (FOMC) met this week and noted that the economy has made progress toward the Fed’s goals necessary to start tapering bond purchases. No definitive timeline was provided, (noting progress would be assessed in coming meetings… plural), but it is clear the Fed is having discussions of what a pullback in asset purchases may look like. They continue to view inflation as a transitory phenomenon and have no plans of hiking interest rates anytime soon.

Personal Consumption Expenditures (PCE) rose 0.5% for a second month in a row, the Core (ex food and energy) was higher by 0.4%, bringing the year-on-year readings to 4.0% and 3.5% respectively. Price pressures came from similar places as the CPI report: vehicles, travel and leisure.

After a back-and-forth week loaded with earnings announcements, the S&P 500 declined modestly by -0.4 to close at 4,395. The NASDAQ Composite was lower by -1.1%. The yield on the 10-Year U.S. Treasury traded in a range of 1.31-1.22% before settling near the low of the week at 1.23% in the final trading session.

Next week’s notable economic data releases include the always highly anticipated Nonfarm Payrolls report, ISM Manufacturing and Services, and Weekly Jobless Claims.