Sightline Weekly Market Update: Fed Delivers Mixed Messages Following Annual Meeting
Equity markets bounced back from the previous week with the Nasdaq and the S&P400 Midcap leading. The optimism of the economic recovery was fueled in part by the news of the FDA’s full approval of the Pfizer-BioNTech Covid-19 vaccine. S&P/TSX gained 40 basis points as crude oil jumped over 10% on the week, the S&P gained 1.52%, the Nasdaq 2.82%, the S&P Mid-cap 400 led advancing 3.42%, and the small-cap Russell 2000 trailing with a 40 basis points increase. Growth stocks led over value. In Europe, the UK’s FTSE led, climbing 0.85% on the week, followed by France’s CAC-40 gaining 0.84%, Italy’s FTSE MIB up 0.34%, and Germany’s DAX increased 28 basis points.
Mixed messages came out of the Jackson Hole virtual meeting with five of the Fed members (Dallas Fed President Robert Kaplan, Kansas City Fed President Esther George, St. Louis Fed President James Bullard, Cleveland Fed President Loretta Mester, and Philadelphia Fed President Patrick Harker), suggesting tapering of asset purchases should begin soon. As one of the majority, Chairman Powell thought that if the economy continued to evolve as anticipated, “it could be appropriate to start reducing the pace of asset purchases this year.”1
In economic news, July’s existing home sales rose 2.0% seasonally adjusted (annual rate of 5.99 million) compared to June’s 1.5%. The increase was attributed to a rise in inventories available, providing buyers more choice. Median home prices fell slightly from the June highs, but at $359,900, were still 17.8% higher year-over-year.2 The US Census Bureau reported new home sales in July were up 1% over June but down 27.7% from a year ago. The median price rose to $390,500, increasing 18.4% year-over-year. Homebuilders continue to report shortages of materials and labor. With interest rates for mortgages at or near lows, buyer demand is strong, as indicated by the number of houses sold (33.3%) in July yet to be started. 3
On Wednesday, the Census Bureau reported new orders for durable goods decreased 0.1% in July after two monthly increases. Excluding transportation, new orders rose 0.7%. Unfilled orders for durable goods, up six months, rose 0.6% or $2.7 billion led by machinery orders increasing 2.1%, up for 16 consecutive months.4
On Thursday, the Labor Department released the latest seasonally adjusted initial unemployment claims at 353,000 for the week ended August 21, an increase of 4,000 from the previous week. Continuing claims increased 182,165 to 12,007,632.5 Heightened concern over the rise of the delta variant may have people becoming more cautious and reducing certain activities, creating pressure on in-person service sectors such as restaurants and hotels. If people stay home, consumer spending could ease, one of the indicators the Fed is closely watching before they ease asset purchases. As reported by the BEA on Friday, consumer spending continues to increase but at a modest 0.3% for July after an increase in June of 1.1%. Personal income increased by 1.1%, benefiting from child-care-tax credit approved in the March federal stimulus.6
While the US economy remains strong, the increasing delta variant cases, if not reduced, will eventually slow the growth. Pent-up demand in many sectors driven in part by materials and labor shortages suggests the economy will remain strong in the coming months.
Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.
Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors primarily through fee-based accounts.
Sightline Wealth Management LP is a wholly owned subsidiary of Ninepoint Financial Group Inc. (“NFG Inc.”). NFG Inc. is also the parent company of Ninepoint Partners LP, it is an investment fund manager and advisor and exempt market dealer. By virtue of the same parent company, Sightline is affiliated with Ninepoint Partners LP. Information and/or materials contained herein is for information purposes only and does not constitute an offer to sell or solicitation to purchase securities of any issuer or any portfolio managed by Sightline Wealth Management or Ninepoint Partners, including Ninepoint managed funds.
The opinions and information contained in this article are those of Sightline Wealth Management (“Sightline”) as of the date of this article and are subject to change without notice. Sightline endeavors to ensure that the content has been compiled from sources that we believe to be reliable. The information is not meant to be used as the primary basis of investment decisions and should not be constructed as advice. Each investor should obtain independent advice before making any investment decisions.