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Market Commentary – August 2021

The benchmark indexes enjoyed a solid August, with the S&P 500 and the Nasdaq reaching record highs multiple times during the month. In fact, the S&P 500 recorded its seventh straight monthly advance — its longest streak of monthly gains since January 2018. Each of the benchmarks is well ahead of its 2020 year-end value, led by the S&P 500, followed by the Nasdaq, the Global Dow, the Dow, and the Russell 2000. Ten-year Treasury yields increased and crude oil prices fell, while the dollar and gold prices inched higher.

Stocks climbed higher in August, despite a drop-in consumer confidence amid the spread of the Delta variant and the possibility of travel restrictions. Growth and technology stocks outperformed cyclicals. Each of the market sectors gained, with only the energy sector sliding lower. Financials and communication services advanced the most.

Federal Reserve Chair Jerome Powell may have done enough to help calm investors' concerns by promoting the idea that interest rates will remain at their current level for some time, although a reduction in the bond-buying stimulus program may begin before the end of the year. Inflationary pressures continued to rise as prices at the consumer and producer levels increased in July.

Second-quarter GDP showed the economy expanded by 6.6%, although this is below expectations at the beginning of the year. Sales of existing and new homes advanced, as prices for new single-family homes rose, while prices for existing homes slid. Industrial production increased. Close to 1.0 million new jobs were added in both June and July, while the unemployment rate and the number of unemployment claims fell.

Market/Index* 2020 Close Prior Month As of August 31 st Monthly Change YTD Change
DIJA 30,606.48 34,935.47 35,360.73 1.22% 15.53%
NASDAQ 12,888.28 14,672.68 15,259.24 4.00% 18.40%
S & P 500 3,756.07 4,395.26 4,522.68 2.90% 20.41%
Russell 2000 1,974.86 2,226.25 2,273.77 2.13% 15.14%
Global Dow 3,487.52 3,981.32 4,063.77 2.07% 16.52%
Federal Funds 0.00% – 0.25% 0.00% – 0.25% 0.00% – 0.25% 0 bps 0 bps
10-yr Treasury 0.91% 1.23% 1.30% 7 bps 39 bps

*Chart reflects price changes, not total return

Last Month's Economic News

  • Employment: There were 943,000 new jobs added in July, keeping up with the pace of June's upwardly revised estimate of 938,000 new jobs. Employment in July is up by 16.7 million since April 2020 but is down by 5.7 million, or 3.7%, from its pre-pandemic level in February 2020. Notable job growth in July occurred in leisure and hospitality (+380,000), with over half of the job gain coming from food services and drinking places (+253,000). Job gains also occurred in local government education (+221,000) and private education (+40,000), professional and business services (+60,000), and transportation and warehousing (+50,000). In July, the unemployment rate declined 0.5 percentage point to 5.4%, with the number of unemployed persons falling by 782,000 to 8.7 million. These measures are down considerably from their recent highs in April 2020 but remain well above their levels prior to the pandemic (3.5% and 5.7 million, respectively, in February 2020). Among the unemployed, the number of persons on temporary layoff dropped by 572,000 to 1.2 million. This measure is down considerably from the recent high of 18.0 million in April 2020 but is 489,000 above the February 2020 level. The labor force participation rate ticked up 0.1 percentage point to 61.7% in July, and the employment-population ratio increased by 0.4 percentage point to 58.4%. Average hourly earnings increased by $0.11 to $30.54 in July after increasing $0.10 in June. Average hourly earnings are up 4.0% from July 2020. The average work week was unchanged at 34.8 hours in July.
  • FOMC/interest rates: The Federal Open Market Committee did not meet in August. However, at the Jackson Hole Economic Policy Symposium, Federal Reserve Chair Jerome Powell reiterated that the current spike in inflation is largely the result of transitory factors and that the FOMC will continue to hold the current target range for the federal funds rate at its current level. Powell also noted that an eventual reduction of monthly asset purchases is likely to begin at some point before the end of 2021.
  • GDP: According to the second estimate, the economy accelerated at an annual rate of 6.6% in the second quarter of 2021 after advancing 6.3% in the first quarter of 2021. Consumer spending, as measured by personal consumption expenditures, increased 11.9% in the second quarter after rising 11.4% in the prior quarter. The personal consumption price index (prices for consumer goods and services) rose 6.5% in the second quarter after climbing 3.8% in the first quarter. Excluding food and energy, the price index increased 6.1%.
  • Inflation/consumer spending: The Consumer Price Index climbed 0.5% in July, the same increase as in June. Over the 12 months ended in July, the CPI rose 5.4%. Food prices increased 0.7% and new vehicle prices rose 1.7%. Energy prices rose 1.6%, with gasoline prices climbing 2.4%. Core prices, excluding food and energy, climbed 0.3% in July and have advanced 4.3% since July 2020. Over the last 12 months, energy prices have risen 23.8%, food prices have increased 3.4%, and prices for used cars and trucks have climbed 41.7%.
  • Prices that producers receive for goods and services continued to climb in July, increasing 1.0% for the second consecutive month. Producer prices increased 7.8% for the 12 months ended in July, the largest yearly gain since November 2010 when 12-month data was first calculated. In July, prices for services rose 1.1% and prices for goods moved up 0.6%. Producer prices less foods, energy, and trade services advanced 0.9% in July and have risen 6.1% since July 2020, the largest 12-month increase since August 2014.
  • Manufacturing: New orders for durable goods decreased 0.1% in July after falling 0.8% in June. Transportation drove July's decrease, with new orders down 2.2% after advancing 1.4% in June. Excluding transportation, new orders increased 0.7%. Excluding defense, new orders fell 1.2%. New orders for nondefense capital goods declined 8.0% following a 1.6% increase in June. New orders for defense capital goods increased 20.5% in July after decreasing 1.4% in June.
  • Housing: Existing home prices advanced for the second consecutive month after climbing 2.0% in July. Over the past 12 months, existing home sales increased 1.5%. The median existing-home price was $359,900 in July ($363,300 in June), up 17.8% from July 2020. Total housing inventory at the end of July rose 7.3% from June's supply but is down 12.0% from one year ago. Unsold inventory sits at a 2.6-month supply at the present sales pace, up slightly from the 2.5-month figure recorded in June but down from 3.1 months in July 2020. Sales of existing single-family homes rose 2.7% in July following a 1.4% advance in June. Year over year, sales of existing single-family homes fell 0.8%. The median existing single-family home price was $367,000 in July, down from $370,600 in June.
  • New single-family home sales increased for the first time in four consecutive months after advancing 1.0% in July. Sales of new single-family homes have decreased 27.2% from July 2020. The median sales price of new single-family houses sold in July was $390,500 ($361,800 in June). The July average sales price was $446,000 ($428,700 in June). The inventory of new single-family homes for sale in July represents a supply of 6.2 months at the current sales pace, up slightly from the June estimate of 6.0 months.
  • International Markets: Inflationary pressures may be slowing at home and around the world. China's Consumer Price Index rose 0.3% in July and is up only 1.0% year over year. Prices were flat in the United Kingdom in July and have increased 2.0% since July 2020. However, prices in the Eurozone picked up in August, climbing 0.4% for the month and 3.0% over the past 12 months. Overall economic growth is trending upward as well. Second-quarter GDP for the Eurozone rose 2.0% and is up 13.6% year over year. The United Kingdom's GDP advanced 4.8% in the second quarter and 22.2% for the year. China's economy continues to rebound, as its GDP rose 7.9% in the second quarter from a year ago. For August, the STOXX Europe 600 Index gained about 1.2%; the United Kingdom's FTSE inched up 0.3%; Japan's Nikkei 225 Index rose 1.1%; and China's Shanghai Composite Index increased nearly 2.3%.
  • Consumer Confidence: According to the latest report from The Conference Board, consumer confidence declined in August for the second consecutive month. The Consumer Confidence Index® stands at 113.8, down marginally from 125.1 in July. The Present Situation Index, based on consumers' assessment of current business and labor market conditions, fell to 147.3 in August from 157.2 in July. The Expectations Index, based on consumers' short-term outlook for income, business, and labor market conditions, registered 91.4 in August, down from 103.8 in July. According to the report, concerns about the Delta variant, coupled with rising gas and food prices, resulted in a less favorable view of current economic conditions.

Eye on the Year Ahead

September could see the economy and the stock market slow down a tad. The number of coronavirus cases continues to rise prompting several foreign countries to consider re-instituting travel restrictions. In addition, the Federal Reserve has indicated that it is likely to begin tapering the bond purchase program in 2021, which could make investors a bit skittish in anticipation of such a move.

The information and opinions in this report were prepared by the ANB Financial Services Division of ANB Bank. Information and opinions have been obtained or derived from sources we consider reliable, but we cannot guarantee their accuracy or completeness. Opinions represent ANB Financial Services opinion as of the date of this article and are for general information purposes only. ANB Financial Services does not undertake to advise you of any change in its opinions or the information contained in this article. Past performance does not indicate future results. The value or income associated may fluctuate. There is always potential for loss, as well as gain. Trust and Investment Services are not insured by the FDIC, Not a deposit or other obligation of, or guaranteed by, the depository institution subject to investment risks, including possible loss of the principal amount invested.