Equities Outlook October - A bottleneck in headwinds
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July Stock Market Commentary
Equities advanced in July for a sixth consecutive monthly gain, as domestic market strength continues to lead the rest of the world higher. The S&P , a benchmark for large cap US stocks, added another +% for the month and is now up +% in
Smaller company stocks backed off in July after a strong first half of the year, with the Russell Index falling % in July to bring the year-to-date return to +%. Overseas equities fell % on the month, primarily due to weakness out of China, where regulatory crackdowns rocked local equity markets. The MSCI ACWI ex-US index is now up +% for the year.
Fixed income markets continued their rally, with the Barclays US Aggregate Bond Index gaining +% in July for a % return YTD. Long-term rates came down as concerns over runaway inflation have moderated. Despite elevated headline data, the Dallas Fed’s Trimmed Mean PCE, an alternative measure of core inflation, is up just 2% in the last year. Gold rallied +% on the month, with prices now down % on the year.
We saw no changes in any of our proprietary “Three Dials” readings during the month of July, each of which are summarized below:
- Market Sentiment and Momentum: Positive
Technical strength within domestic equities has been remarkably consistent in , with intra-month dips finding support around the day Moving Average to end the month at another record high. While overseas equities have traded slightly more range-bound recently, on balance our Momentum Dial remains in a “Positive” position at the end of July.
- Economic Fundamentals: Positive
Advance estimates indicate that the US economy grew at a +% annualized rate during Q2, a slight acceleration from the prior quarter. Meanwhile, the IMF upped their global growth forecast for by % to +%, indicating that a strong fiscal response and improved public health metrics should sustain above-average growth in the near-term. While risks posed by the delta variant should not be ignored, our Fundamental Dial remains in a “Positive” position based on the current pro-growth landscape.
- Valuation: Negative
While US equity valuations continue to sit near record highs, corporate earnings for Q2 have been overwhelmingly positive so far, lending credence to the idea that stocks may be able to grow into these lofty price-to-earnings ratios. On the other hand, relative valuations overseas appear a bit more attractive, where post-COVID growth continues to lag. On balance, our Valuation Dial remains negative.
Our Three Dials composite reading continues to take a “Cautiously Optimistic” view, as strong showings in the areas of Momentum and Economic Fundamentals are balanced by Valuation concerns.
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U.S. Equities Market Attributes September
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The S&P opened the month well, posting a new closing high (54th of the year), on Sept. 2, (4,; it has posted at least one new closing high in each month since November ). It should have closed the month and quarter then (and missed all the fun in Washington), but instead, it went on to live up to the September tradition of being the worst month of the year (averaging a decline of %; the month is negative % of the time), as it struggled (to put it nicely) the rest of the month. To be fair, the damage was controllable and the sells were orderly (with the worst one-day drop being %, on Sept. 28, ), as the month ended with a % decline—the first monthly decline since January 's %, and the worst since March 's % decline. September ended leaving the index up a modest % for the quarter (Q3 was up %), % YTD (% with dividends), up % (%) from the pre-COVID Feb. 19, , high (3,), and up % (%) from the March 23, , recent low (2,). To be fair again (and I don't want to make a habit of it), September is when the market gets back to business after summer vacation, as do those nice people in Washington. This year, however, seemed to put more on DC's plate than the annual budget, which was approved and signed hours before the deadline (debt limit and a few stimulus programs remain in negotiations), and normal political games, which have increased in intensity. The Fed set a tentative schedule for tapering to start this year (and end mid), as it indicated a potential interest rate increase in late or early The market initially accepted the two schedules with a slight decline, rather than a correction, but then it focused on higher interest rates, as the year U.S. Treasury Bond rose above % (reaching % and closing at %; it closed September at %, September at %, and September with an extra digit, at %). In the background was also the YTD gains waiting to be taken (% at the end of August), the impact of the COVID variant, which most on the Street still see as "transient," and the Fed's makeup (two resignations and the Warren-Powell issue, which on a higher level is more about the battle within the Democratic party).
On my front page were the new records for Q2 stats: earnings were up % over Q1 and % over a COVIDdepressed Q2 ; sales came in up % from Q1 and % year-over-year; and margins increased % (the average from Q1 is %). Buybacks and dividends also did well (Q3 dividend payments have set a new record, and we'll do a release next week; Q2 buybacks were 11% away from a record).
At this point, a nice shakeout has been due for so long that when it comes, there should be few surprises (but there will be some). Higher interest rates, short-term (hopefully) COVID spread, shortages, and volatile U.S. economic dominance may all justify a downturn, but in the end, one is due (and possible if the buying stops). The bottom line for September in the market is if % is the payback (which it likely won't be; more could be expected), then "play it again, Sam" (absent COVID). The S&P closed at 4,, down % (% with dividends), from last month's 4, close, when it was up % (%) and the prior month's 4, close, when it was up % (%). The three-month return was % (%), the YTD return was % (%), the one-year return was % (%), and the index was up % (%) from its pre-COVID Feb. 19, , closing high. The Dow® ended the month at 33,, down % for the month (% with dividends), from last month's 35, close, when it was up % (%), as the three-month return was % (%), the YTD return was % (%), and the one-year gain was % (%).
The S&P posted 1 new closing high in September (12 in August) and 54 YTD; it has posted new closing highs in every month since November (it missed October but had new closing highs in August and September ). The index closed up % (%) from its pre-COVID Feb. 19, , closing high (73 new closing highs). Since Biden won the Nov. 3, , U.S. election, the S&P has gained % (%), and there have been 52 closing highs since his inauguration. The bull market was up % (%) from the low on March 23, The index closed down % from its closing high of 4, (set Sept. 2, ).
On Capitol Hill, the U.S. Congress raced to find a compromise on the debt and budget in order to avoid a government shutdown. Congress passed a stop-gap budget through Dec. 3, , with Biden signing hours before the deadline. The USD billion healthcare, education, and climate bill started to take shape, including a 2% tax on buybacks by publicly traded issues, but remained a work in progress. A vote on the USD 1 trillion Infrastructure bill was delayed into October as talks continued, as progressives attempted to link the USD trillion climate, education, and social bill to it.
The S&P one-year target price increased for the month (even though the index declined), as it broke 5, for the first time, at USD 5, (a forward high estimate), a % gain (% last month) from now (USD 4, last month and USD 4, the previous month). The Dow target price was USD 39, (a forward high estimate), a % gain (%) from now (USD 39, last month and USD 38, the month before).
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ETF Transactions by U.S. Insurers in Q2
The second quarter of saw as much trading as the first, as insurance companies continued to trade ETFs actively. While trading volume was lower relative to , insurance companies traded in the first half of the year almost as much as they held in their portfolios at the beginning of the year. In this report, we analyze these trades and explore the differences between the two quarters.
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In the first quarter of , insurance companies traded USD 15 billion in ETFs. In the second quarter, insurance companies increased this amount slightly to USD 16 billion. In the first half of the year, insurance companies traded USD 31 billion in ETFs. The amount of trading was slightly lower than for the same period in , when companies traded USD 38 billion. However, the COVID crisis affected the trading volume in
As seen before, trading volume isn’t uniform over the period. Insurance companies traded more at the end of each quarter, with irregular spikes during the middle of the quarters (see Exhibit 1).
In terms of asset classes, the trading pattern was markedly different between the first and second quarters. In the first quarter, the trades were roughly even between Equity and Fixed Income ETFs. However, trading in Equity ETFs dominated the second quarter (see Exhibit 2).
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U.S. Equities Market Attributes August
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"I hope my meaning won't be lost or misconstrued, but I'll repeat myself," as I update the weeks, but it is now the 13th week in a row that the S&P has posted a new closing high (starting the week of June 7, ; 27 in that time period), and it has posted 53 new closing highs YTD (tied for fourth, so far, since ; the record is with 77). For the month, the index posted 12 new closing highs in its 22 trading days, so the odd day was when it didn't post a new high; the index was up % for August. If that doesn't take your "breadth" away, consider that of the S&P issues have gained YTD (average %), with of them up at least 20% (% average). If you can't gasp that, from the (pre-COVID) close, were up (average %), and (average %) if you exclude the 50 that have at least doubled. To be fair to the song, and more importantly the market, "There must be 50 ways to" play this market, including "just slip out the back, Jack, make a new plan, Stan, you don't need to be coy, Roy," just take your profits given we are up % YTD (after 's % and 's %). And I might as well repeat myself on this one too, "This Market Is Nuts" (from the NYT front page), but if you’re not in it, you're nuts—and most likely out of a job.
The U.S. Senate stayed in session to pass a bipartisan USD 1 trillion () infrastructure bill, passing it on to the House, as it also passed a USD trillion framework bill along party lines (), permitting them to start the debate. The Taliban completed taking control of Afghanistan as the U.S. was leaving, taking the capital city of Kabul and occupying executive offices, as President Ghani left the country. Biden went on national TV and defended the departure, affirming the Aug. 31, , total pullout date. Reports showed people trying to leave the country, as most exits were controlled and limited. On Aug. 26, , two bombs attributed to suicide bombers went off at the Kabul airport, killing 13 U.S. troops (first U.S. serviceperson killed since February , when an agreement for the pullout was reached) and at least Afghans, as the attack was attributed to an ISIS affiliate (which is fighting with the Taliban). The U.S. completed its departure on Aug. 31, , and the market did not react to the situation.
Concern grew that due to the COVID variant, herd immunity may not be reached after 70% of the population is fully vaccinated and may need to be increased; discussed target rates were over 80%. The fight over requiring grade school students to be masked grew, as political beliefs appeared to overpower the issue (or wellness of children). The U.S. Food and Drug Administration (FDA) authorized COVID boosters (a third shot) to medically vulnerable people. The CDC recommended that individuals get booster shots eight months after they received their first shot of either Moderna (MRNA) or Pfizer (PFE). Biden encouraged (starting the week of Sept. 20, ) a third booster shot for those fully vaccinated (with Moderna or Pfizer; Johnson & Johnson (JNJ) was still being reviewed), starting eight months after the second shot, utilizing a priority rollout (expected to include healthcare workers, those at risk, the elderly, etc.). Similar to the rollout of the first vaccine shots, this is expected to vary by state (since there is no federal mandate). Later in the month, the FDA officially approved Pfizer's COVID vaccine, changing its emergency use approval to permanent use, and some companies and municipalities moved to require their workers to get the vaccine. Johnson & Johnson said a booster shot (to their one-shot vaccine) resulted in a strong immune response of antibody levels.
The EU recommended that its member states (27) halt all nonessential travel to the U.S. for non-vaccinated individuals, citing the high COVID variant spread; it had added the U.S. to the safe list in June U.S. COVID vaccinations have surged to an average , per day from , at month-end July (, in June and million in May), as the Delta variant continued to spread, reaching , cases per day, up from 67, at the end of July. The increase also resulted in many companies delaying their return-to-work schedule and putting back-to-school schedules in jeopardy. Florida remained the epicenter for the Delta variant, as the state continued to set infection records. The vaccine rate in the U.S. (for having at least one shot) reached 70% for adults, as the general eligible population was at %, with % being fully vaccinated. Several states (including Louisiana) and areas (including San Francisco) reinstated mask requirements, as California became the first state to require all teachers and staff to be vaccinated or tested in order to return to work, followed by New York City requiring proof of vaccination to enter events, gyms, and restaurants. The U.S. will require all military personnel to be vaccinated by Sept. 15,
Many companies (Home Depot, McDonalds, Target, Tyson Foods) reinstated their mask requirements, with some companies delaying their return to office (BlackRock, Citigroup, and Wells Fargo, with Amazon delaying into ) or requiring vaccinations (Microsoft, United Airlines for U.S.-based employees). On Broad and Wall, the New York Stock Exchange said all people on the trading floor will need to be vaccinated by Sept. 13,
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U.S. Equities Market Attributes July
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It was a good July for investors. The S&P continued up, which has become the norm, setting new highs along the way. The U.S. reopening was front and center (along with the sounds of clinging registers and swiping cards at merchants), even as the COVID Delta variant spread dramatically (especially among the unvaccinated). Globally, however, things were not as good, as the recovery appeared to be on hold (or moving at a slower pace) due to the fourth wave, as countries (including the U.S.) tried to convince people to get the vaccine (markets were one sided YTD, as the S&P United States BMI was up %, compared with the S&P Global Ex-U.S. BMI’s %). France and Italy restricted entry to certain establishments without a vaccine, while the U.K. declared a “Freedom Day” by eliminating restrictions, even as COVID continued to spread in that country, and the Prime Minister was forced to isolate due to exposure. In the U.S., the CDC updated its recommendations to advise everyone (regardless of vaccination status) to wear masks inside where there may be a risk, with Biden requiring federal employees to wear them, while Los Angeles and New York City are requiring them in schools (starting in September).
For the S&P , however, it has been a good year, with some thinking of closing out and going on vacation for the rest of the year—but why do that when so many people (domestic and foreign) are pouring money in (strong inflows) to support stocks? The award-winning supporting role for the second quarter in a row was played by earnings in the second half of the month, as they easily beat estimates (both on earnings and sales, with an 88% beat rate), while margins remained high (Q2 looks like it will be at %, which would be a record) and guidance improved (with some footnotes about the Delta variant and supplies), and companies appeared to be able to pass along higher costs to the ever-spending consumer. For July, the index posted 7 new closing highs (8 in June; 41 YTD); it has posted new closing highs in every month since November (it missed October but had new closing highs in August and September ). The index closed the month up % (after June’s % gain) and up % YTD (after ’s % gain).
The U.S. proposal for a global minimum tax won the support of countries, as part of an international taxing code change. The proposal must now be detailed and worked out, with expected difficulties with individual nations attempting to protect their own concerns.
Democrats on the Senate Budget Committee agreed on a USD trillion human and infrastructure bill (USD 4 trillion sought by Biden, and USD 6 trillion by progressives in his party), which could pass without Republican support.
In a separate bill, the U.S. Senate voted to start working (and voting) on a USD 1 trillion infrastructure deal, which would actually add USD billion more to the existing allocations. Given the vote and political makeup, the bill is expected to eventually be approved.
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The Journey to Net Zero
Global Head of ESG Capital Markets Strategy, S&P Global
The landmark Paris Agreement marked a sea change in the global fight against climate change. More than countries are now committed to limiting global temperature rise and offsetting humanity’s contribution to it. Unfortunately, the current pledges and policies go nowhere near enough. Achieving net zero emissions by will require far more collective power than policymakers alone can provide. However, a combination of groundbreaking new datasets and index innovation is emerging, enabling investors to play an expanded role in achieving the goals of the Paris Agreement. Cutting-edge developments in Paris alignment, physical risks, and Scope 3 emissions data and the pioneering S&P PACTTM Indices (S&P Paris-Aligned & Climate Transition Indices) provide market participants with the option to align their portfolios with a scenario that may mitigate the most catastrophic climate impacts and at the same time, embark on the journey toward a net zero economy.
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A DECLARATION OF IMPORTANCE: CLIMATE RISK IS REAL, BUT PARIS ALIGNMENT DATA CAN HELP US SOLVE IT
We hold these truths to be self-evident: that the climate is rapidly warming due to human activity; that if we don’t act soon, we’ll face certain dire consequences; and, that among these are loss of life, loss of habitat, and widespread destruction. We have a limited window to transition to a low-carbon economy and limit global temperature rise to well below 2°C (preferably °C) of warming since pre-industrial levels. Efforts are well underway thanks to the Paris Agreement and ratified commitments from at least parties. Groundbreaking new datasets and index innovations are catalyzing an investor-led revolution: to reorient capital flows toward a net zero emissions trajectory by
Among these, are the S&P PACT Indices. Compliant with the EU Low Carbon Benchmark Regulation, these indices equip investors with the tools to align with the Paris Agreement and achieve other climate objectives, while remaining as close as possible to the underlying benchmark, targeting broad and diversified exposure. The sophistication of methodology and depth, breadth, and robustness of the underlying S&P Global data set these indices apart.
This is a summary of articles that originally appeared in The Quality Imperative, by S&P Global Sustainable1:
A Declaration of Importance: Climate Risk is Real, But Paris Aligned Data Can Help Us Solve It
Let’s Get Physical with S&P Trucost’s Physical Climate Risk Data
It’s All Within Scope, With S&P Global Scope 3 Data
They have been modified with permission to be republished by S&P Dow Jones Indices.
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Bond market and bank holidays differ
Bond traders follow a more expansive holiday calendar under guidelines set by the Securities Industry and Financial Markets Association (SIFMA), a trade group that represents securities firms, banks and asset management companies.
In , U.S. bond markets close on eight of the nine days the stock exchanges are silent, including Labor Day. (The exception is Good Friday.) They also close on Columbus Day and Veterans Day (Thursday, Nov. 11).
The bond markets close early on six occasions: at 12 p.m. ET on Good Friday and at 2 p.m. ET on the Friday before Memorial Day, the Friday before Independence Day, Black Friday, Christmas Eve and New Year's Eve.
The stock market calendar also differs from the Federal Reserve System holiday schedule followed by most U.S. banks. The Fed observes Columbus Day and Veterans Day, does not take Good Friday off and does not have any formally scheduled early closing days.
Stock exchanges rarely sleep for long
Except in rare circumstances, three-day holiday weekends are the longest time the stock market goes quiet. The exchanges have closed for more than three days running only a handful of times in the past century, most recently during Superstorm Sandy in and after the 9/11 attacks in
The three-day limit is not a formal policy, but rather a rule of thumb that prevents “investor angst” from building up during an extended down period and creating volatility when the market reopens, says Sam Stovall, chief investment strategist at the investment research firm CFRA.
"There's an old saying that bull markets take the escalator while bear markets take the elevator,” Stovall says. “Since fear is a greater motivator than greed, I think investors don't want to be denied access to their money for too long. Otherwise they end up taking money off the table, especially if some unnerving event occurred while the exchange was closed."
July 2021 market stock
U.S. stock markets hit new highs, Treasury yields up as choppy week ends
- Wall Street closes at record highs
- Flash PMI data mixed, COVID worries hurt outlook
- Oil up; U.S. dollar, U.S. treasury yields rise
NEW YORK, July 23 (Reuters) - All three major U.S. stock indexes closed at record highs on Friday after a rocky week in which investors fretted over the Delta coronavirus variant and cheered an economic recovery, while U.S. Treasury yields rose before a Federal Reserve meeting next week.
Megacap tech stocks and positive corporate earnings helped drive main U.S. indexes up again. Yields on U.S. Treasuries were also up, as was the dollar, with investors eyeing next week's Federal Reserve meeting for hints on the U.S. economic recovery from the COVID pandemic and when the central bank will pull back support for the economy.
"It's certainly been a really strong run. For now it looks justified based on the strong earnings results. We got interest rate stability, which was helpful. As the economic recovery continues, as long as people are continuing to get out there despite the Delta variant, we think stocks can go higher," said Jeff Buchbinder, equity strategist for LPL Financial. "We think the ride will get bumpier in the second half, but we think the bull market continues."
The Dow Jones Industrial Average (.DJI) rose points, or %, to close the week at 35,, while the S&P (.SPX) gained points, or %, to 4, The Nasdaq Composite (.IXIC) added points, or %, to close at 14,
The greenback on Friday booked a second week of gains after a volatile few days as risk appetite waxed and waned.
The dollar index , which measures the greenback against a basket of six major currencies, was slightly higher on the day at That was off a /2-month high of hit on Wednesday.
For the week, it was up %, after rising % previously. read more
The yield on year Treasury notes hovered around %, or almost 17 basis points higher than a five-month low set on Tuesday, but was still at the low end of a recent range. The benchmark note traded up basis points to % after briefly rising above %.
"We're closing out the week on a very nice trade, and it's being driven by earnings primarily and earnings specifically in stocks that speak to the consumer, which is not a new story but it's a story that adds momentum to the trade in the second half of the year," said Peter Kenny, founder of Kenny & Co LLC, the parent company for Strategic Board Solutions and Kenny's Commentary, a subscriber-based political and economic newsletter.
After declining earlier in the trading session, oil was set to end the week slightly up. read more
Investors have been assuming "things will improve, travel will increase," said Steve Massocca, managing director at Wedbush Securities. "There are concerns about the Delta variant."
Massocca added, "If that thesis is thrown into jeopardy, it put a hitch in the 'giddy up' in the market."
Some parts of the United States are implementing mask mandates again due to new COVID cases, while others have not, leading to confusion. read more
U.S. business activity grew at a moderate pace for a second straight month in July amid supply constraints, suggesting a cooling in economic activity, a report from data firm IHS Markit showed on Friday. read more
Positive corporate earnings helped the stock market. American Express Co (AXP.N) jumped % after posting second-quarter profit that beat expectations.
Social media firms Twitter Inc (TWTR.N) and Snap Inc (SNAP.N) gained % and %, respectively, after their upbeat results.
Financial markets have swung from one direction to another this week as investors try to assess what the surging Delta variant means for the world economy.
After recording its steepest one-day drop since May on Monday, the S&P stock index went on to post the biggest one-day jump since March a day later. Currency, bond and commodities markets have seen similar gyrations.
Reporting by Jessica DiNapoli; Additional reporting by Dhara Ranasinghe and Wayne Cole in Syndey; Editing by Ana Nicolaci da Costa, Will Dunham, Pravin Char, Dan Grebler and Raissa Kasolowsky
Our Standards: The Thomson Reuters Trust Principles.
Stock Market Holidays in
In certain circumstances, the stock market will close early in the days preceding or following market holidays. The NYSE and Nasdaq will close at 1 p.m. the day after Thanksgiving; on Christmas Eve, if it falls on a weekday; and on July 3, if both it and July 4 fall on a weekday.
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Bond Market Holiday Schedule
The bond markets observe the same nine holidays, as well as two additional holidays:
The bond markets also observe several early closings at 2 p.m. each year:
- The Friday preceding Memorial Day
- The Friday before Independence Day
- Black Friday (the day after Thanksgiving)
- Christmas Eve
- New Year's Eve
A couple small differences from The bond market does not close early on Maundy Thursday in , and it will close at noon on Good Friday instead of closing for the full day.
When it comes to the stock and bond markets alike, if a holiday falls on a weekend, market closures are dictated by two rules:
- If the holiday falls on a Saturday, the market will close on the preceding Friday.
- If the holiday falls on a Sunday, the market will close on the subsequent Monday.
Stock and Bond Market Hours
The "core trading" stock market hours for the NYSE and Nasdaq are a.m. to 4 p.m. on weekdays. However, both exchanges offer premarket trading hours between 4 and a.m., as well as late trading hours between 4 and 8 p.m.
Bond markets usually trade between 8 a.m. and 5 p.m.
Why does the stock market offer such limited hours when there are people who would want to buy and sell 24/7?
One of the main reasons is "liquidity," which is how much buying and selling is going on at a given time. The more liquidity in a particular security, the likelier you are to get a fair price on it; the less liquidity, the more likely you might have to settle for a less-than-ideal price to finish off a transaction.
"For the market to function effectively, you need buyers and sellers," says Charles Sizemore, principal of Sizemore Capital Management. "This is why the stock market has set hours that happen to correspond to the East Coast workday. You want the maximum number of traders buying and selling at the same time.
"If you were at an estate auction selling your grandmother's antiques, you'd want a lot of bidders there. It's the same rationale in the stock market."
Data provided by the NYSE and SIFMA.
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