Market Strategy 8/23/2021
Rock Steady
Investors are likely to focus on the Fed’s Jackson Hole economic symposium this week along with the last of Q2 earnings and a brace of economic data.
Key Takeaways
- With over 95% of the S&P 500 companies having reported, earnings growth is up 93.8% on revenue growth of 25.8%. Consumer discretionary, industrials, financials, and materials sector firms have driven results.
- The Baltic Dry Index, an average of transportation costs, rose to its highest level since 2010. The index can serve as a leading indicator of global economic activity, but also may reflect capacity constraints.
- We show that M&A activity in 2021 through Aug. 20 is up sharply both from over the same period in 2020 as well as from 2019.
- The price of WTI crude oil fell 8.9% last week on concerns that the “Delta” variant could interrupt the process of economic reopenings. As of last Friday, oil was off a little more than 17% from its high for the year of $75.25
Stocks stateside and around the world moved broadly lower last week on concerns about economic growth, COVID-19 variant risk to re-openings around the world, supply chain disruptions, and heightened geopolitical risk.
The Dow Jones Industrial Average, the S&P 500, the S&P 400 (mid-caps), the S&P 600 (small caps), the Russell 2000 (small caps) and the NASDAQ Composite (over 40% weighted in tech or tech related companies) respectively fell 1.11%, 0.59%, 2.04%, 2.14%, 2.50% and 0.73% on the week.
Investors favored large caps over mid-caps and small caps in last week’s downdraft with the S&P 500, the NASDAQ Composite and the Dow Jones Industrial Average posting the best relative returns for the week.
Both the S&P 500 and the Dow Jones Industrial average ironically had posted new record highs last Monday only to come under some pressure for a spell as investors pondered the risks du jour to be navigated.
As the week drew to a close, investor sentiment shifted from risk off to “buy the dips” and the Dow Jones Industrial Average, the S&P 500, the S&P 400 (mid-caps), the S&P 600 (small caps), the Russell 2000 (small caps) and the NASDAQ Composite (over 40% weighted in tech or tech related companies) closed respectively higher last Friday, up 0.65%, 0.81%, 1.17%, 1.57%. 1.65% and 1.19%.
It's worth noting that in Friday’s rally investors favored small caps, the tech-weighted NASDAQ Composite and mid-cap stocks over the S&P 500 and the Dow Jones Industrials suggesting to us that markets remain prone to rebalancing and rotation on a regular basis (even day to day) as traders and other investors find their way through the complexity of the current transitional period wherein the stateside economy and other economies around the world move towards exiting pandemic oppression in search of the next new normal.
Navigating out of any crisis is never easy but in hindsight historically has often been shown to be well worth the effort for investors who practice patience and know what they own, why they own it and keep rightsized expectations of how what they own is likely to perform in the process of a “workout” environment like the one we are in now.
“Stay the course” remains in our view a useful adage for now
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