More earnings records, US leaves Afghanistan, FOMC minutes released: our top 10 stories of the week

Read the 10 stories to remember from the week which ended August 20th.

#1: Markets took a step back after record Monday
Despite gains made by all three major U.S. stock indexes on Friday, the indexes posted weekly declines. The indexes were weighed down by losses among shares of economically sensitive companies such as banks and energy producers, and fears over the surge in COVID-19 infections. Small-cap stocks lagged for the week, with the Russell 2000 Index briefly falling into correction territory, down more than 10% from its March 2021 peak. Energy shares performed worst within the S&P 500, while gains in a wide range of health care stocks boosted the sector.

#2: FOMC minutes
Minutes of the U.S. Federal Reserve’s July 27–28 meeting revealed an emerging consensus to start reducing asset purchases before the end of the year. The minutes, which were released on August 18, also showed that Fed officials made it clear that a tapering isn’t a precursor to an imminent rate hike.

#3: United States exited Afghanistan
Evacuations and chaos continued following the U.S. withdrawal from Afghanistan. While the market impact has been muted, rising geopolitical risks in the region could be a future source of volatility. One thing has become more clear in that the exit has slowed down growth in China.

#4: Retail sales falter
Even as sales continue to be well above pre-pandemic levels, spending on goods retreated over the last month. U.S. retail sales fell 1.1% in July relative to June. The rise in COVID-19 cases related to the spread of the Delta variant could be one reason for the consumer demand pullback. Much of the decline was concentrated in auto sales, which fell 3.9% as consumers balked at high prices and automakers struggled with the ongoing global semiconductor chip shortage and other supply issues.

#5: Earnings continue to break records
Nearly 91% of S&P 500 companies reported their earnings for the second quarter. Nearly 87% of the reported companies have actual revenues above the mean revenue estimate.

#6: Oil volatility continues
U.S. crude oil prices continued to fall this week, closing around $62 per barrel. Even as more supply reached the market worldwide, investors remain worried over the continuing spread of COVID-19. Brent crude futures were up almost 2% to above $66 a barrel on Monday, ending a 7-day losing streak and attempting to rebound from a 7.7% plunge last week which was the weakest performance since February 2018. Still, persistent worries over the rapid spread of the coronavirus delta variant and the impact it will have on fuel demand continue to weigh and the market sentiment will likely remain bearish this week.

#7: Bitcoin extended its gains
Bitcoin continued to extend its gains from the previous week, rising to $48,713. Even as the cryptocurrency continued to rise after hitting a low on July 21, it remains far below the $63,000 record level that it hit in April.

#8: Bond yields rise
U.S. Treasury yields decreased through most of the week, with the yield on the benchmark 10-year Treasury note touching its lowest level since August 5. (Bond prices and yields move in opposite directions.) T. Rowe Price traders reported that fears surrounding the delta variant, dovish sentiment from some Fed policymakers, and the weaker-than-expected retail sales print supported the week’s rally. The broad municipal bond market was little changed through most of the week and underperformed Treasuries.

#9: Eurozone inflation outpaces UK
Inflation in the UK rose less than expected in July and cooled from June’s levels. According to the Office of National Statistics (ONS), the annual consumer price index (CPI) increase fell to 2.0% in July, in line with the Bank of England’s target, from 2.5% in June, while the CPI measure that includes housing costs dropped from 2.4% to 2.1% for the annual period. Downward pressure from clothing and footwear was partially offset by rising used car prices.

#10: Chinese regulatory clampdown slams stocks
Chinese stocks slumped as Beijing’s regulatory clampdown on the technology sector stoked uncertainty about what other sectors the government might target next. Liquor stocks slumped after state media reported that the State Administration for Market Regulation was considering new regulations for liquor companies. Health care companies fell on concerns that industry profits would also be curbed by new regulations.

Source: John Hancock Investment Management, T-Rowe Price


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