Inflation in the wings

08/09/21
  • Stocks edge to new highs, Treasury yields jump on employment data
  • Energy sector weathers oil volatility storm
  • This week: Latest inflation numbers…and get ready for “taper talk”

First it was GDP, then jobs.

For a second week in a row, “surprise” economic data failed to trigger much of a reaction from stock traders. But that didn’t stop the US market from climbing to fresh highs with key inflation data just around the corner.

The S&P 500 (SPX) closed the first week of August at a new record high, although it gained just 0.17% after Friday’s estimate-topping jobs report:

Chart 1: S&P 500 (SPX), 7/1/21–8/6/21. S&P 500 (SPX) price chart. Ended week at new record.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)


The headline: Stocks gain to start August, but respond coolly to hot jobs data.

The fine print: One down, one to go? Two weeks ago, Federal Governor Christopher Waller said the central bank could begin to scale back its stimulus efforts as early as October if the next two monthly employment reports showed job increases of 800,000 to 1 million.”1 And on that score…

The number: 943,00, the number of new jobs created in July—topping estimates comfortably. (Also, June’s number was revised up from 850,000 to 938,000.)

The scorecard: The Nasdaq 100 (NDX) tech index led the US market last week despite closing lower on Friday:

US stock index performance table for week ending 8/6/20. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)


Sector roundup: The strongest S&P 500 sectors last week were financials (+3.5%), utilities (+2.3%), and information technology (+0.9%). The weakest sectors were consumer staples (-0.5%), materials (0.1%), and industrials (0.1%).

Highlight reel: BeyondSpring (BYSI) +176% to $26.58 on Wednesday, Score Media & Gaming (SCR) +80% to $32.64 on Thursday. On the downside, Shenandoah Telecommunications Com (SHEN) -42% to $29.58 on Tuesday, Zymergen (ZY) -76% to $8.25 on Wednesday (then +75% to $14.45 on Thursday).

Futures action: Oil suffered one of its worst weeks of the year, with September WTI crude oil (CLU1) tumbling $5.67 (7.7%) to close Friday at $68.28/barrel. (Our colleagues at Morgan Stanley recently shared some interesting observations about the recent disconnect between oil prices and oil stocks.) December gold (GCZ1) broke out of the bottom of its recent consolidation after Friday’s jobs report, posting its biggest down day (-2.5%) in six weeks and closing at $1,763.10/ounce.

Coming this week

With jobs in the rearview mirror, it’s time to focus on the latest inflation data—CPI and PPI:

Today: JOLTs (job openings)
Tuesday: NFIB Business Optimism Index, Productivity and Labor Costs (preliminary)
Wednesday: Consumer Price Index (CPI)
Thursday: Producer Price Index (PPI)
Friday: Import and Export Prices, Consumer Sentiment (preliminary)  

Earnings this week include:

Today: BioNTech (BNTX), Zai Labs (ZLAB), Workhorse (WKHS), Rocket Pharmaceuticals (RCKT), Squarespace (SQSP), Purple Innovation (PRPL)
Tuesday: Beam Therapeutics (BEAM), Coinbase (COIN), Fubotv (FUBO), Plby Group (PLBY), Upstart (UPST)
Wednesday: Applovin (APP), Bumble (BMBL), Vroom (VRM), Nio (NIO), Blink Charging (BLNK), EVgo (EVGO)
Thursday: Airbnb (ABNB), DoorDash (DASH), LegalZoom (LZ), Palantir (PLTR)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

The three-week difference

So far this year the SPX’s return has a roughly 1% edge over the NDX’s—18.x% vs. 17.x%, even though the NDX’s median weekly return (0.7%) is a little bigger than the SPX’s (0.6%), and its median losing week (-1% vs. -1.2%) is a little smaller.

But the SPX has made up for those deficits by being more consistently bullish: It’s had 21 up weeks and just 10 down weeks vs. 18 up and 13 down for the NDX.

A small difference, but so far this year it’s been the difference between first and second place.

 

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1 Reuters. Fed's Waller: 'Go early and go fast' on taper. 8/2/21.
2 Reflects S&P 500 (SPX) weekly price data, 12/31/20–8/6/21. Supporting document available upon request.

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