July's modest gains, upbeat US earnings stocks, Chinese stocks crash and cryptos bouncing back: our top 10 stories of the week

Read the top 10 stories to remember the week which ended July 30th.

#1 : July's modest gainsU.S. equity markets wrapped up a solid month. The Nasdaq and Dow have added 1% and 1.4% respectively in July, while the S&P 500 is up 2.2% over the same period. Utilities, healthcare, real estate and technology stocks have led the S&P 500 higher for the month, while energy and financials have lagged. That's the opposite of what was happening in January and February, which is a telling sign that economic momentum is slowing. Meanwhile, emerging markets tumbled 6% over the month mainly due to China equities pullback (-28% for Chinese Tech). Long duration bonds had a strong month (+4% for the US Treasury 20 years) while Bitcoin recovered part of the second quarter losses (+17% in July).

#2 : A mixed week for equity markets In a week of mostly quiet midsummer trading, the major US equity indexes were mixed for the week. The large-cap benchmarks and the Nasdaq managed record highs before pulling back Friday to end the week with modest losses. A decline in Amazon.com shares weighed on the consumer discretionary sector following news Thursday evening that the online retailer missed consensus second-quarter revenue expectations. Shares in Europe were little changed. Optimism engendered by strong corporate earnings was offset by concernés about the spread of the delta variant of the coronavirus and volatility spurred by Chinese regulators cracking down on domestic technology and education companies (more on this later).

#3 : Upbeat US corporate earningsIt was the busiest week of the earnings season, with 177 of the S&P 500 companies expected to report second-quarter results, according to Refinitiv. Earnings season continued to exceed expectations. Second-quarter profits at companies in the S&P 500 were expected to surge 85% as of Friday, based on companies that have reported so far and forecasts for upcoming reports, according to FactSet. That’s up from the 63% gain that had been forecast at the end of June. The 85% figure—if realized once earnings season concludes—would mark the highest year-over-year earnings growth since the fourth quarter of 2009. While earnings have been phenomenal, investors only seem to care about the future. Indeed, guidance for the current quarter and the rest of the year has been weak, and some company executives are not providing forecasts due to uncertainty.

#4 : Leadership reversal within US equitiesAfter lagging large-cap peers by a wide margin through much of July, a U.S. small-cap benchmark posted a gain of nearly 1% in a week when large-cap indexes slipped. Despite the comeback, from June 11 through Friday’s close, the Russell 2000 Index has declined nearly 5%. Likewise, recently underperforming utilities shares reversed course and were among the best performers in the S&P 500 Index, along with materials and real estate stocks.

#5 : Chinese stocks tumbled on the back of regulatory crackdown Mainland Chinese stocks slumped after a regulatory overhaul of the for-profit education sector unveiled July 24 proved to be much tougher than investors had expected, and fears of heightened government oversight spilled into other sectors. The large-cap CSI 300 Index sank 5.5% in its worst weekly drop since February. In Hong Kong, the Hang Seng Index declined 1.4% for the week after the benchmark index shed more than 8.0% on Monday and Tuesday on record-high volumes. Under the education policy changes, China banned after-school tutoring companies from being run for profit, raising capital, or going public. Moreover, the companies are forbidden from offering school syllabus-related tutoring on weekends and vacation days and giving online lessons to children under six. Toward the end of the week, stock markets stabilized as regulatory concerns appeared to ease, albeit without a relief rally. The People’s Bank of China pumped RMB 30 billion into the country’s financial system on both Thursday and Friday via seven-day reverse repurchase agreements, Bloomberg reported.

#6 : US growth rebounds albeit less than expectedThe U.S. economy continues to have some growing pains amid a persistent pandemic. The government’s initial estimate showed that GDP expanded at a 6.5% annualized rate in the second quarter—only slightly better than the 6.3% rate in the first quarter and below most economists’ expectations for around 8.0%. Nevertheless, it was the second-fastest pace of growth since 2003. Many analysts pointed to lingering supply chain problems as preventing even stronger growth. Headline June durable goods orders also fell well short of expectations, as did core capital goods orders and shipments. Weekly jobless claims fell less than expected, and continuing claims rose a bit. On the positive side, July consumer confidence surprised to the upside, and inflation expectations eased slightly.

#7 : Fed rate outlookThe official statement from the Federal Open Market Committee’s (FOMC’s) July 27–28 meeting was viewed by market participants as somewhat hawkish —namely, policymakers’ recognition that “the economy has made progress toward” the committee’s goals was perceived as paving the way for the Federal Reserve’s future tapering of monthly asset purchases. However, U.S. Federal Reserve Chairman Jerome Powell said during his post-meeting remarks that the central bank was nowhere near considering plans to raise interest rates. He said that an increase is not yet “on our radar screen” despite the economy’s continued progress toward the Fed’s goals of achieving low unemployment and stable inflation.

#8 : Eurozone GDP grows more than forecast; inflation picks up The eurozone economy bounced back from recession in the second quarter, growing by a faster-than-expected 2% relative to the first three months of 2021. The year-over-year growth rate of 13.7% also topped prominent estimates. Output expanded in Germany, France, Italy, and Spain, although the uptick in Germany came in below forecast because of supply bottlenecks that hindered its manufacturing sector. Euro area inflation accelerated to 2.2% in July from 1.9% in June, lifted by higher energy prices. However, excluding food and fuel prices, the inflation rate held steady at 0.9%.

#9 : Bond yields decreaseReflecting the downward growth and inflation surprises, the yield on the benchmark 10-year U.S. Treasury note ended lower for the week. Eurozone bond yields declined on concerns about the spread of the coronavirus and doubts about reflation expectations and the wider economic recovery. Peripheral market yields generally followed core markets, falling after the European Central Bank (ECB) suggested inflation could temporarily overshoot its 2% target. UK gilt yields also tracked yields in other core markets.

#10 : Cryptos bounced back Bitcoin’s price recovered by more than 20% over this week, hitting highs of almost $42,000. The rise follows two bearish months since the market crashed in May. The rise last week took place despite news of a US infrastructure bill that includes a hidden crypto tax, regulatory actions against stablecoins and exchanges, and the Chinese mining migration. Meanwhile, the price of Ethereum has reached $2,600, a price not seen since early June, when the cryptocurrency was still descending from its all-time high of $4,357 on May 12. Ethereum’s price was up nearly 22% over the week.

 

Source: Investopedia, The Market Ear, T-Rowe Price, John Hancock 

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