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 lower last week, while international equities posted mixed returns. The benchmark S&P 500 Index fell 0.4% in total return for the week after hitting a record high in prior week. The Dow Jones Industrial Average also fell 0.4% and the Nasdaq Composite Index dropped 1.1%. For the month of July, major U.S. indices posted gains, with the S&P 500 Index ending up 2.4% in total return. Treasuries were stronger with the U.S. 10-year Treasury yield down 5 basis points last week to end Friday at 1.22%. The U.S. dollar weakened modestly versus major peers.
The spread of the delta variant of COVID-19 continued to be a key concern for investors as a potential threat to the economic recovery. Governments and business owners are beginning to reinstate mask mandates and delay office reopenings in certain areas of the country.
Second quarter earnings season continued with roughly 60% of S&P 500 Index companies now having reported results. According to data from FactSet, 88% of companies that have reported beat expectations for each earnings and revenue results. Many firms have noted strong demand and improving margins.
The Federal Reserve met to set monetary policy, voting to hold interest rates unchanged near zero. The Federal Open Market Committee (FOMC) continues to assess whether "substantial further progress" has been made, which is expected to prompt the tapering of asset purchases later this year or early next year. Officials continue to monitor the labor market, where they are looking for a broad and inclusive recovery, and inflation, which they believe is being impacted largely by transitory pressures.
The highlight on the U.S. economic calendar was the first reading of second quarter economic growth. Gross domestic product (GDP) rose an annualized 6.5% last quarter, trailing forecasts and slightly better than the first quarter. Consumer spending, which makes up most of economic growth, jumped an annualized 11.8%, representing one of the largest gains since the 1950s. Core personal consumption expenditures, a measure of inflation, surged an annualized 6.1% in the second quarter, up from 2.7% in the first quarter but in line with expectations. A separate report released Friday showed personal spending and incomes each rose 0.1% in the month of June.
The report on durable goods orders for June showed an 0.8% increase, worse than anticipated but following a sharp upward revision to May’s gain. Core capital goods orders, a proxy for business investment, rose 0.5% for a second month. The Conference Board’s index of consumer confidence beat expectations for July, despite uncertainty surrounding the delta variant and inflation pressures.
Lawmakers met over the weekend to finalize text of a $550 billion bipartisan infrastructure bill, with a vote expected later this week. House Speaker Nancy Pelosi has said that she will not hold a vote on the bill unless the Senate also passes a larger reconciliation package.
In the week ahead, third quarter earnings season continues. The U.S. economic calendar includes the Institute for Supply Management’s purchasing manager indices, or PMIs, factory orders and the trade balance. On Friday, the Bureau of Labor Statistics releases its monthly Employment Situation Report, expected to show another substantial increase in payrolls and a slight drop in the unemployment rate.
As always, we’ll be watching and reporting back to you. Thank you.
