Small caps fade, inflation rise, but retail pops: our Top 10 stories of the week

Read the 10 stories to remember from the week which ended July 16. 

#1: Earnings strength

As of Friday, 85% of the S&P 500 companies that had reported second-quarter results exceeded analysts’ earnings estimates, according to FactSet. That so-called beat rate ranks above the 75% five-year average. Results were in from 8% of S&P 500 companies as of Friday, with many of the early reports coming in from major banks.


#2: Inflation spikes persist

A monthly measure of U.S. consumer prices rose at the fastest pace since 2008. June’s Consumer Price Index rose 5.4% from the same period a year earlier, surprising many economists who had expected the recent spike in inflation to moderate.

#3: Federal bank reassurance

In the wake of the latest monthly report showing rising inflation, Federal Reserve Chairman Jerome Powell told a congressional panel that the central bank wouldn’t hesitate to lift interest rates to try to control rising prices. However, Powell repeatedly emphasized that he still expects price pressures to ease later this year.


#4: Retail makes comeback

Shoppers were in a buying mood again last month as retail sales rose 0.6% in June relative to the previous month. Spending had slowed through most of the spring after surging earlier in the year due in part to federal aid to households designed to spur economic recovery amid the pandemic.

#5: Small caps surrender momentum

The more than 5% weekly decline in the Russell 2000 Index marked the fourth week in a row that the small-cap benchmark has lagged its large-cap counterpart by a wide margin. From June 11 through Friday’s close, the Russell 2000 Index has declined more than 7% versus a 1% gain for the large-cap Russell 1000 Index.


#6: Bond market volatility 

With inflation-related news generating big headlines much of the week, it was choppy in the bond market. The yield of the 10-year U.S. Treasury bond climbed as high as 1.42% on Tuesday, only to tumble below 1.29% on Thursday and close the week around 1.30%. As recently as late March, the yield was 1.74%.


#7: Chinese recovery

The world’s second-largest economy has recently been recovering from the pandemic at a much slower pace than it had at the start of the year. China recorded a 7.9% annual growth rate in this year’s second quarter, down from a record 18.3% rate in the first quarter. China’s government has set a full-year growth target of more than 6.0%.


#8: US-listed Chinese firms scrutinized 

Increased regulatory scrutiny of U.S.-listed Chinese internet companies like ride-hailer Didi Chuxing continued to concern foreign investors. Commercial law firms in Hong Kong said that Beijing's stricter cybersecurity and antimonopoly regulations could accelerate the trend for Chinese companies to list in Hong Kong. While the valuations of China's leading internet companies could suffer in the short term, analysts said a more transparent legal and regulatory regime could benefit the sector in the long term.


#9: UK lifts lockdowns. France reimpose. 

The UK remains on course to lift its remaining COVID-19 lockdown controls on Monday, even as the number of coronavirus infections surges. Meanwhile, France implemented new social restrictions to prevent the spread of the new variant. People must show a health pass, proving they have been vaccinated to use long-distance trains, to go out to eat and drink, and to visit shops, cinemas, and theaters.


#10: BoJ details climate strategy

The BoJ issued a separate release on its climate strategy, in which it outlined a series of incentives for lenders to help businesses move toward a greener economy, as well as plans to buy foreign green bonds. A program of interest-free loans for climate change investments is likely to be launched in 2021, with eligible loans or investments including green loans and bonds, sustainability-linked loans/bonds with performance targets, and transition finance. The BoJ also said it would buy green bonds denominated in foreign currencies using its foreign reserves.


Source: John Hancock Investment Management, T-Rowe Price