Hello, this is Tom Jalics, Chief Market Strategist at Fifth Third Bank
Major U.S. equity benchmarks had a strong week with the three major indexes finishing with gains. The S&P 500 Index continued momentum from last week's gains. The S&P 500 rose by nearly 1.0%, the NASDAQ increased by 1.1%, and the Dow Jones Industrial Average was up 0.8%. There was no one specific factor behind the better price action last week. Some of the credit went to another strong batch of earnings and upbeat corporate commentary. The economic calendar was a bright spot with the upside surprise in July nonfarm payrolls as the highlight. The U.S. 10-year treasury yield ended the week at 1.30%, up two basis point from the previous Friday’s close. Gold was down 2.3%, ending the week at $1,761/oz. West Texas Intermediate Crude Oil fell 5.5% to end the week at $68.10/barrel.
Second quarter 2021 earnings season continued to ramp up last week, with nearly 90% of the S&P 500 now having reported, with very strong results relative to expectations. According to FactSet's latest Earnings Insight, the blended earnings growth stands at nearly 89% growth year-over-year, up from 52% at start of the quarter, and 64% at the start of earnings season. The report noted that 87% have beaten consensus earnings expectations, on track for a record high. In aggregate, companies have reported earnings 17.1% above expectations, well above the five-year average positive surprise rate of 7.8%. Companies across a highlighted a strong demand backdrop and the accompanying operating leverage. Those most exposed to the virus continued to downplay any impact from the spread of the Delta variant. Supply chain constraints and input price pressures dominated earnings calls and are likely to persist into the second half of 2021.
There were several major U.S. economic releases last week. The July employment report was the highlight of the week with data consistent with a continuing recovery in the domestic labor market. Employment in the United States continued to grow as nonfarm payrolls in the month of July added 943k jobs which was above estimates of 870k. The unemployment rate was 5.4%, which was below expectations, as well as below last month's reading of 5.9%. Labor force participation increased to 61.7% in July from 61.6% in June. Additionally, initial jobless claims and continuing claims were 385k and 2.9 million, respectively. Jobless claims came in slightly higher than estimates of 383k and continuing claims were lower than expectations of 3.3 million. Outside of the jobs picture, Manufacturing PMI beat estimates and came in at 63.4 for the month of July. A reading above 50.0 indicates an expanding manufacturing sector. Manufacturing PMI is a leading indicator of how the U.S. economy and the manufacturing sector in general is fairing. Manufacturing PMI has been steadily improving throughout 2021.
In the week ahead, the domestic economic calendar is full with nonfarm productivity on Monday, the Consumer Price Index on Tuesday, and the University of Michigan sentiment survey on Friday. OPEC will publish its monthly Oil Market Report, which highlights world oil demand and supply. Hong Kong is set to lift some of its tightest border restrictions and fully vaccinated U.S. residents will be allowed to enter into Canada. Finally, second quarter earnings season continues with notable reports from Walt Disney, Airbnb, HelloFresh, and more.
As always, we will be watching and reporting to you next week. Thank you.