Nasdaq Stands Out During Quiet Week

The Stock Market Started September On A Quiet Note After An Equally Quiet Finish To August. The S&P 500 Added 0.6% For The Week While The Nasdaq Outperformed, Gaining 1.6%. The Dow Lagged Throughout The Week, Shedding 0.2%.

The S&P 500 and Nasdaq recorded the bulk of this week's gains on Monday, inching to fresh record highs as the week went on.

The start of the new month brought the release of manufacturing and non-manufacturing surveys from major economies. Most of these surveys showed a deceleration in activity while China's Caixin manufacturing and non-manufacturing fell into contraction, prompting speculation about more easing. Meanwhile, manufacturing and non-manufacturing surveys from the U.S. remained in expansionary territory.

Friday's release of the Employment Situation report for August muddled the economic picture for the U.S., as nonfarm payrolls increased by just 235,000 while the Briefing.com consensus expected growth of 750,000. The headline miss was coupled with a 0.6% increase in average hourly earnings, which was well ahead of the 0.3% increase expected by the Briefing.com consensus.

Seven sectors ended the week in positive territory with gains ranging from 0.9% (technology) to 4.0% (real estate). On the downside, financials (-2.5%) and energy (-1.4%) finished at the bottom of the leaderboard while materials (-0.9%) and industrials (-0.4%) recorded slimmer losses.

Bull Market Bounces Back to Record Highs, Fed Chair Powell Pleases Market

The S&P 500 (+1.5%) And Nasdaq Composite (+2.8%) Set Record Highs Every Day This Week, Except For Thursday, Accentuating The Bull Market's Persistent Ability To Overlook Concerns And Attract Buying Interest. Both Ended The Week Higher By 1.5% And 2.8%, Respectively, Following Fed Chair Powell's Jackson Hole Speech On Friday.

The Dow Jones Industrial Average underperformed on a relative basis with a 1.0% gain, while the Russell 2000 raced ahead with a 5.1% gain amid a strong bounce in energy stocks.

From a sector perspective, the S&P 500 energy sector rebounded 7.3% (cutting its monthly decline to 1.0%) while five other sectors rose more than 2.0%. The defensive-oriented utilities (-2.1%), consumer staples (-1.4%), health care (-1.2%), and real estate (-0.3%) sectors closed lower, loosely reflecting a greater tolerance for riskier stocks. 

Prior to Fed Chair Powell's speech, the market was in-tune with a buy-the-dip mindset amid various developments:

• An observation that last week ended on a high note.

• Data suggesting the Delta variant could be peaking in the U.S.

• The FDA granting full approval for the Pfizer (PFE)-BioNTech (BNTX) vaccine for people 16 years and older.

• The House advancing the $3.5 trillion budget resolution and the $1 trillion bipartisan infrastructure bill through procedural hurdles.

• Earnings reports for the most part continuing to beat expectations.

• Taiwan Semi (TSM) planning to increase prices of more advanced chips by 10-20% next year.

• Preliminary manufacturing and services PMIs for August out of the eurozone and U.S. remaining in expansion mode.

• Reports indicating White House advisors and Treasury Secretary Yellen are on board with nominating Fed Chair Powell for a second term.

Interestingly, despite all the good news, the S&P 500 was only up 0.6% entering Friday. Part of that was because of the geopolitical uncertainty in Afghanistan, hawkish-sounding Fed commentary about wanting to taper sooner rather than later, and some hesitancy in front of Fed Chair Powell's speech.

The hawkish commentary continued Friday morning, but Fed Chair Powell struck a diplomatic tone that appeased the market. Briefly, Mr. Powell said "substantial further progress" has been met on inflation and that "clear progress" has been made on employment, implying it's not yet time for the Fed to start tapering asset purchases because the labor market still has room for improvement.

While the Fed chair acknowledged that tapering should probably start before the year ends, he reminded market participants that even when the central bank ends purchases, financial conditions will still be accommodative and that the criteria for interest-rate hikes will be based on a more careful assessment of the economy.

Treasury yields lost some rebound momentum following the comments. The 10-yr yield settled five basis points higher at 1.31% after hitting 1.37% earlier in the week. The U.S. Dollar Index fell 0.9% to 92.68.

Market Tags Record Highs Then Retreats Amid a Host of Concerns

The S&P 500 (-0.6%) And Dow Jones Industrial Average (-1.1%) Started The Week Setting Record Highs, But The Market Got Caught Up In A Myriad Of Concerns That Left The Major Indices Lower For The Week. The S&P 500 Lost 0.6%, The Dow Lost 1.1%, And The Nasdaq Composite Lost 0.7%. The Russell 2000 Was The Real Loser With A 2.5% Decline.

Briefly, there were concerns surrounding 1) supply chain disruptions worsened by the Delta variant, 2) vaccine efficacy, 3) the Fed's taper timeline as the July FOMC minutes rehashed commentary about tapering sooner rather than later, 4) China's regulatory crackdown, 5) Afghanistan after it was overtaken by the Taliban, and 6) the potential for a larger pullback.

Essentially, the concerns were growth-related at a time when the market was trading at record highs and the economic data wasn't all that great. Retail sales for July, total housing starts for July, and the Empire State Manufacturing Survey for August were each weaker than expected. Weekly initial and continuing claims both improved.

At one point during the week, the S&P 500 was down 2.5% from its record high on Monday. The mega-caps were among the first to rebound, though, then a broad-based advance ensued on Friday as investors bought the dip amid some fears of missing out on a rebound rally.

The damage was already done for the cyclical stocks, though. The energy sector (-7.3%) ended the week down 7% as oil prices ($62.25, -6.12, -9.0%) tumbled 9%. The materials (-3.1%), consumer discretionary (-2.2%), financials (-2.3%), and industrials (-2.3%) sectors declined between 2-3%.

Conversely, the health care (+1.8%), utilities (+1.8%), real estate (+0.6%), consumer staples (+0.4%), and information technology (+0.4%) sectors ended the week in the green. Microsoft (MSFT) broke out to record highs with a 3.9% gain.

Longer-dated Treasuries rose in sympathy with growth concerns, leaving the 10-yr yield down four basis points to 1.26%. The CBOE Volatility Index, meanwhile, spiked 20% to 18.56 amid increased hedging interest.

DOW AND S&P 500 MAINTAIN UPWARD TRACK

The Past Week Saw More New Records In The Stock Market With The Dow And S&P 500 Inching To Fresh Highs. The Two Indices Gained A Respective 0.9% And 0.7% For The Week While The Nasdaq Underperformed, Shedding 0.1%. Small Caps Also Struggled To Keep Pace, As The Russell 2000 Gave Up 1.1%.

There was some focus on news from Washington during the first half of the week, as the Senate approved a $1.2 trln infrastructure bill and authorized $3.5 trln in additional spending. The bills will now be considered by the House, but reports from Friday pointed to some fresh uncertainty as nine House Democrats said they won't vote for the $3.5 trillion budget resolution until the $1.2 trillion bipartisan infrastructure bill is signed into law.

The renewed misgivings did not stop the major averages from ending the week on a positive note. Ten sectors recorded gains for the week with materials (+2.7%), consumer staples (+2.1%), and financials (+1.9%) leading the way while energy (-0.8%) finished in the red.

Consumer staples received significant support from Tyson Foods (TSN), as the stock jumped nearly 14.0% for the week after reporting better than expected results on Monday morning. Sysco (SYY) gained nearly 7.5% after it too beat quarterly expectations on Tuesday morning.

In other earnings of note, Disney (DIS) touched a three-month high after beating earnings and revenue expectations on Thursday evening.

On the downside, chipmakers underperformed through Thursday with the PHLX Semiconductor Index narrowing its loss for the week to 2.3% during a Friday rebound. The underperformance followed a report from DRAMeXchange about market expectations for memory prices to drop up to 5.0% in Q4.

The bulk of last week's economic reports were close to estimates while the preliminary reading of the University of Michigan Sentiment Survey for August produced a big downside surprise. The index fell to 70.2 from 81.2, reaching its lowest level since late 2011 due to deteriorating sentiment about all aspects of the economy.

Treasuries faced some selling pressure during the first half of the week but recovered the bulk of their losses during a Friday rebound that left the 10-yr yield (1.30%) up just one basis point for the week.

Economic Data Keeps Bull Market Going

The Stock Market Muscled Out Another Trio Of Record Closing Highs For The S&P 500 (+0.9%), Nasdaq Composite (+1.1%), And Dow Jones Industrial Average (+0.8%) This Week, As Risk Sentiment Was Supported By An Encouraging Round Of Economic Data. The Russell 2000 Rose 1.0%, Keeping Pace With Its Large-Cap Peers.

Recapping the key economic data:

• The Employment Situation report for July was better than expected, featuring 943,000 additions to nonfarm payrolls (Briefing.com consensus 925,000)

• July manufacturing activity in the U.S., Europe, and Asia remained in expansionary territory

• The July ISM Non-Manufacturing Index increased to a record high of 64.1% (Briefing.com consensus 60.5%)

• The June trade balance report saw imports outstrip exports as the U.S. tried to meet the pent-up demand in the economy

• Weekly continuing claims dipped below 3.0 million for the first time since the pandemic began

The takeaway was that the labor market, the manufacturing sector, the services sector, and trade activity continued to paint a good recovery in the economy. Note, the employment report supported the case for the Fed to consider tapering asset purchases sooner rather than later.

Growth stocks and value stocks rose together, evident by the 0.9% gains in both the Russell 1000 Value Index and Russell 1000 Growth Index. Ten of the 11 S&P 500 sectors contributed to the advance, paced by the financials (+3.6%) and utilities (+2.3%) sectors with strong gains. No other sector gained more than 1.0%.

The consumer staples sector (-0.6%) was the only sector that closed lower. 

Other supportive factors included good earnings news from a plethora of companies, M&A activity, and a finalized text of the $1 trillion bipartisan infrastructure bill that the Senate plans to vote on this weekend.

The 10-yr yield traded as low as 1.13% this week amid peak growth/inflation expectations, and concerns about the Delta variant, but ended the week at 1.29% or five basis points above last Friday's settlement. This rebound aligned with a pro-growth mindset.

Large-Cap Indices Weighed Down by the Mega-Caps After Earnings

The S&P 500 (-0.4%), Dow Jones Industrial Average (-0.4%), And Nasdaq Composite (-1.1%) Ended The Week In Negative Territory, More So The Nasdaq, After Setting Intraday And Record Highs To Start The Week. The Russell 2000 Outperformed And Gained 0.8%.

It was a busy week to say the least, from reviewing a ton of earning news, to scrutinizing the Fed's latest policy decision, and sifting through the latest economic data and coronavirus headlines.

Starting with earnings, Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), Alphabet (GOOG), and Facebook (FB), which comprise about 22% of the S&P 500's market capitalization, struggled this week after soberly reminding investors that their incredible growth over the past year is apt to moderate. 

Apple and Facebook issued cautious outlooks due to tough yr/yr comparisons while Amazon went as far as providing below-consensus revenue guidance for the third quarter. This fit nicely with the peak growth narrative, which was reinforced by mixed economic data and the continued spread of the Delta variant.

New home sales for June, durable goods orders for June, and the advance estimate for Q2 GDP each missed expectations. On the plus side, Q2 GDP still increased at a robust annual rate of 6.5% (Briefing.com consensus 8.5%), the consumer confidence report for July was better than expected, and the Personal Income and Spending report for June featured better-than-expected spending data and better-than-feared PCE price inflation data.

Despite the mega-cap losses, the market hung in there, as the Fed made no changes to its extraordinarily accommodative policy stance. Fed Chair Powell took it one step further and said there's still some time until substantial further progress has been made towards reaching the Fed's employment goal.

Fed Chair Powell's observation was conducive for risk sentiment, and while it may not have looked like it from an index perspective, seven of the 11 S&P 500 sectors did close in positive territory. The mega-caps pressured three of those sectors -- consumer discretionary (-2.6%), communication services (-1.0%), and information technology (-0.7%).

The materials (+2.8%) and energy (+1.6%) sectors posted decent gains while the financials (+0.7%), health care (+0.5%), real estate (+0.3%), utilities (+0.3%), and consumer staples (+0.2%) sectors rose modestly.  

The 10-yr yield decreased five basis points to 1.24%, underscoring peak growth/inflation expectations. 

Market Rebounds and Ends Week at Record Highs

The S&P 500 (+2.0%), Dow Jones Industrial Average (+1.1%), and Nasdaq Composite (+2.8%) ended the week at record highs, as investors embraced a buy-the-dip mindset and piled into the largest stocks in the market after a rough start to the week. Each of the major indices, including the Russell 2000 (+2.2%), rose between 1-3%.

On Monday, the S&P 500 dipped below its 50-day moving average (4257) and the Russell 2000 entered correction territory, which is often defined as a 10% decline from a recent high, reportedly because the market was concerned about the Delta variant slowing down economic growth.

Each of the major indices fell between 1-2% that day, but the silver lining was that the S&P 500 successfully retested its 50-day moving average. The benchmark index subsequently closed higher every day after Monday, largely due to the following factors:

• A belief that successfully retesting the 50-day moving average was bullish, as it has been since April 2020.

• Easing Delta variant concerns after the CEOs of Coca-Cola (KO), Chipotle Mexican Grill (CMG), and United Airlines (UAL) said their businesses haven't been impacted by the dominant variant.

• Expectations that the mega-caps will provide strong earnings reports next week after a heavy slate of good earnings news this week. The Vanguard Mega Cap ETF (MGK) rose 3.1% this week.

• Price momentum and a fear of missing out on further gains.

Nine of the 11 S&P 500 sectors closed higher, led by the communication services (+3.2%), consumer discretionary (+2.9%), information technology (+2.2%), and health care (+2.2%) sectors with gains over 2.0%. The energy (-0.4%) and utilities (-0.9%) sectors closed lower. 

Signs of peak growth still lingered, though, which likely restrained the rebound gains in many of the value/cyclical stocks. These signs were manifested in the latest economic data:

• Building permits, which are a leading indicator, declined 5.1% m/m to a seasonally adjusted annual rate of 1.598 million (Briefing.com consensus 1.700 million).

• Weekly initial claims reached their highest level since mid-May at 419,000 (Briefing.com consensus 360,000).

• The Conference Board's Leading Economic Index increased at its slowest pace since February at 0.7% (Briefing.com consensus 0.9%).

• The preliminary IHS Markit Services PMI decreased to 59.8 in July from 64.6 in June.

The 10-yr yield decreased one basis point to 1.29%, although it dipped below 1.14% early in the week.

Tough Week for Stocks as Treasury Market Throws Off Investors

The Week Started With The S&P 500 (‐1.0%), Nasdaq Composite (‐1.9%), And Dow Jones Industrial Average (‐0.5%) Closing At Record Highs, But That's About As Good As It Got. They Each Finished Lower As The Market Turned Defensive While The Real Loser Was The Russell 2000 (‐5.1%) With A 5% Decline.

There wasn't one specific event to blame for the losses, but the Treasury market continued to behave as if inflation rates and growth rates could be peaking. That's because the 10‐yr yield decreased six basis points to 1.30%, even as consumer and producer prices ran hotter than expected in June and retail sales data for June beat expectations.

On a year‐over‐year basis, total CPI was up 5.4% and producer prices for final demand were up 7.3%. Total retail sales increased 0.6% m/m in June (Briefing.com consensus: ‐0.6%).

The defensive bias was further underscored by the solid gains from the S&P 500 utilities (+2.6%), consumer staples (+1.3%), and real estate (+0.7%) sectors. Apple (AAPL) did well, too, rising 0.9% for the week after Bloomberg reported the company plans to increase production for its next‐gen iPhone by 20% this year.

Conversely, energy sector was beat up with a 7.7% decline, outpacing the decline in oil prices ($71.76/bbl, ‐2.80, ‐3.8%). The consumer discretionary (‐2.6%), materials (‐2.4%), and financials (‐1.6%) sectors also underperformed with losses over 1.5%.

There were a lot of EPS beats this week, most predominately out of the financials sector, but that didn't matter so much for the broader market, let alone the banks given the lower Treasury yields. Taiwan Semi (TSM), however, missed EPS estimates, which really weighed on the Philadelphia Semiconductor Index (-4.1%)

Separately, Fed Chair Powell testified before Congress for his semiannual report on monetary policy. The key takeaway from that hearing was that the Fed isn't ready to dial back its accommodative policy since Mr. Powell said, "reaching the standard of 'substantial further progress' is still a ways off."

All in all, it seemed like the stock market cooled off in part because of the confounding price action in the Treasury market. We'll see what happens next week when a host of non‐financial companies report earnings.

SLOPPY WEEK ENDS IN RECORD HIGHS

The S&P 500 (+0.4%), Dow Jones Industrial Average (+0.2%), And Nasdaq Composite (+0.4%) Eked Out Small Gains And Ended The Week In Record Territory. The Small‐Cap Russell 2000 Struggled This Week And Declined 1.1%.

The trading week was shortened to four days in observance for July 4th on Monday, so the week's action started on Tuesday when the S&P 500 snapped a streak of seven straight record closes. Reportedly, investors were worried about peak growth concerns due to a deceleration in the June ISM Non‐Manufacturing Index and the spread of the Delta Covid variant.

The next day featured a mega‐cap driven advance before the peak growth narrative again resurfaced as an excuse to do some selling on Thursday. The biggest source of angst was out of the Treasury market after the 10‐yr yield traded as low as 1.25% in part due to short‐covering activity since many people had been calling for yields to go up and not down.

To be fair, growth concerns seemed legitimate on Thursday after Japan extended its coronavirus state of emergency through Aug. 22 (barring spectators from the Olympics), and reports indicated the People's Bank of China (PBOC) could soon cut the required reserve ratio for banks due to slower growth expectations. The PBOC did just that by 50 bps on Friday.

Stocks and Treasury yields recovered a bit on Thursday and continued their rebound bids on Friday, with some attributing technical factors and a buy‐the‐dip mindset for the resilient price action. At the end of the sloppy week, the growth stocks stood atop the leaderboard while the cyclical stocks generally lagged.

The S&P 500 consumer discretionary (+1.5%) and real estate (+2.6%) sectors finished with strong gains and were the only sectors that rose more than 1.0%. Conversely, the energy (‐3.4%), communication services (‐0.4%), and financials (‐0.6%) sectors were the only sectors that closed lower.

Interestingly, WTI futures briefly hit a six‐year high above $76 per barrel after OPEC+ was unable to agree to further production increases. On a related note, the EIA reported its seventh‐straight weekly inventory draw.

The 10‐yr yield ended the week at 1.36%, or seven basis points below last Friday's settlement.

THIRD QUARTER BEGINS WITH NEW RECORD HIGHS

This Was An Impressive Week For The S&P 500, Which Gained 1.7%, Extended Its Streak To Seven Straight Record Closes, And Topped The 4300 Level With Ease.

The Nasdaq Composite outdid the benchmark index with a 1.9% gain and its own set of record‐setting performances.

The Dow Jones Industrial Average advanced 1.0% and closed at its first record high since May, while the Russell 2000 fell 1.2% amid rebalancing factors.

Interestingly, the Russell 1000 Growth Index rose 2.4% while the Russell 1000 Value Index (comprised of many cyclical stocks) increased just 0.4% despite a host of positive developments:

• June nonfarm payrolls increased by 850,000 (Briefing.com consensus of 680,000).

• The June ISM Manufacturing Index checked in at 60.6% (Briefing.com consensus 61.0%) for its 13th straight month above 50.0% (expansionary activity).

• The Conference Board's Consumer Confidence Index for June was better‐than‐expected at 127.3 (Briefing.com consensus 120.0).

• Weekly initial claims declined to a post‐pandemic low of 364,000 (Briefing.com consensus 400,000).

• Many banks increased their dividend payments after easily passing the Fed's stress test in the prior week.

The employment report, however, wasn't as strong as the headline jobs figure initially suggested. The unemployment rate (5.9%), average hourly earnings (+0.3%), and the average workweek (34.7) missed expectations. In addition, the labor force participation rate (61.6%) was unchanged, and there were higher rates of unemployment for minority groups.

What's more, there were reported growth concerns linked to the spread of the Delta coronavirus variant and the restrictions several countries imposed to curb infections. On a related note, Johnson & Johnson (JNJ) said its COVID‐19 vaccine showed persistent activity against the Delta variant with long‐lasting durability of response.

These growth concerns were manifested in the 11‐basis‐point decline in the 10‐yr yield (1.43%), which acted as a tailwind for the growth stocks ‐‐ especially the mega‐caps. The Vanguard Mega Cap Growth ETF (MGK) rose 2.6% this week. Facebook (FB) reached a $1 trillion market capitalization, and NVIDIA (NVDA) reached a $500 billion market capitalization.

Separately, WTI crude futures topped $75 per barrel amid speculation that OPEC+ will agree to a smaller‐than‐expected increase in supply, starting in August. An agreement was supposed to be reached on Thursday, but the week ended without an agreement.