Hello, this is Claire Rubin, Private Bank Investment Strategist at Fifth Third Bank with this week’s Economic Beat.
Major U.S. equity indices finished mostly higher in the holiday-shortened trading week last week, while international equities posted declines. The benchmark S&P 500 Index rose 0.4% in total return for the week for its sixth weekly increase in the last seven. The Dow Jones Industrial Average rose a quarter of a percent and the Nasdaq Composite Index increased 0.4%. Treasuries continued a recent rally with the U.S. 10-year Treasury yield down 6 basis points to end the week at 1.36%. The U.S. dollar weakened modestly versus major peers.
The continued downward pressure on bond yields was a major theme in markets. This was accompanied by further unwinding of the so-called reflation trade. The surge in economic growth in the first half of the year had supported outperformance of value stocks over growth stocks that has reversed in recent weeks amid warnings of peak growth levels and peak inflation among market participants. Last week, a measure of large cap U.S. growth stocks in the S&P 500 rose 1.0%, while a measure of large cap U.S. value stocks in the benchmark index lost 0.3% in total return.
The U.S. economic calendar was relatively light. The Institute for Supply Management’s Services Index came in weaker than expected on Tuesday dropping to 60.1 in June from 64.0 in the prior month. The data indicated that U.S. service providers expanded at a slower pace than expected, though the reading was still well above the level of 50 that indicates growth in the sector. The Job Openings and Labor Turnover Survey, or JOLTS report, showed that U.S. job openings rose to a record in May amid hiring difficulties, particularly in healthcare, education and hospitality. The number of people who voluntarily left their jobs came down in May, with the quits rate falling to 2.5%.
Minutes from the Federal Reserve’s June meeting showed that officials plan to discuss tapering asset purchases in the coming months. Consensus expectations remain that the Fed will begin tapering early next year and that officials will not raise interest rates until at least 2023.
Finance ministers from the Group of 20 met in Venice and agreed in principle on a global corporate tax deal to impose an international minimum rate of at least 15% and redistribute taxation rights based on where multinationals operate. The proposal will continue to face political hurdles in the U.S., particularly if the plan would require a two-thirds vote in the Senate.
In the week ahead, third quarter earnings season begins with some of the largest U.S. banks among the first to report. The economic calendar includes the June Consumer Price Index, an important inflation indicator. We will also be watching the report on retail sales, expected to show a modest decline last month after a 1.3% drop in May. Federal Reserve Chair Jerome Powell will deliver his semi-annual monetary policy testimony to Congress. The Bank of Japan and the Bank of Canada meet to set interest rates.
As always, we’ll be watching and reporting back to you. Thank you.
