Investment Commentary – Aug 11, 2021
Year to Date Market Indices as of Aug 11, 2021
• Dow 35,368 (15.22%)
• S&P 4,447 (18.12%)
• NASDAQ 14,833 (14.74%)
• Gold $1,744 (-5.40%)
• OIL $67.48 (48.53%)
• Barclay Bond Aggregate (-1.46%)
• Fed Funds Rate 0-0.25 (0-0.25)
• Annual Inflation Rate 5.4% (As of 8/11/21)
Dow futures jump 120 points after inflation report is not as bad as feared
U.S. stock index futures rose on Wednesday after inflation jumped, but not by quite as much as investors feared when stripping out volatile food and energy prices.
Futures contracts tied to the Dow Jones Industrial Average gained about 120 points, or 0.3%. S&P 500 futures rose 0.3% and Nasdaq 100 futures gained 0.4%, as interest rates gave up their gains.
The 10-year Treasury yield turned flat following the report, giving up an earlier gain and trading around 1.344%.
July’s Consumer Price Index released Wednesday showed prices jumped 5.4% since last year, compared to expectations of 5.3%, according to economists surveyed by Dow Jones. The government said CPI increased 0.5% in July on month-to-month basis.
But investors were concentrating on the core rate of inflation. CPI, excluding energy and food prices, rose by 0.3% last month, below the 0.4% increase expected. Core prices still jumped 4.3% on a year-over-year basis.
The data “should help assuage investor fears that the Fed is too laid-back about inflation pressures, ” said Seema Shah, Chief Strategist, Principal Global Investors. “The details of the data release suggest some easing in the reopening and supply-shortage driven boost to prices, and tentatively suggests that inflation may have peaked. Investors in the transitory camp will feel slightly vindicated.”
Used car prices, which investors have been watching as one sign of out-of-control inflation, rose just 0.2% in July after surging more than 10% in the prior month.
Oil prices dropped Wednesday after the White House called on OPEC and its allies to increase oil production to support the global recovery from the pandemic. Futures contracts for West Texas Intermediate crude fell by more than 1% to about $67.44 per barrel. European benchmark Brent crude also slipped by more than 1% to about $69.85 per barrel.
Shares of Southwest Airlines ticked nearly 2% lower in premarket trading after lowering its third quarter operating revenue guidance, citing the Delta variant. American Airlines and United Airlines also slipped in the
The march to record highs for stocks comes despite Covid case numbers rising in the U.S. and around the world.
“Widespread vaccine distribution and distancing measures have helped limit the variant’s impact, but we could still see some drag on economic growth as some restrictions are reintroduced and consumers potentially become more cautious,” said Barry Gilbert, asset allocation strategist at LPL Financial. “While we may see an increase in market volatility due to the Delta variant, we believe the S&P 500 is still likely to see more gains through the end of the year,” he added.
Dow Jones, S&P 500 hold near records as Senate passes $1T infrastructure bill
The Dow Jones Industrial Average rose 156 points, or 0.45%, while the S&P 500 index advanced 0.19% and the Nasdaq Composite fell 0.38%. The gains propelled both the Dow and the S&P 500 to all-time highs as the Nasdaq hovered just below its peak.
The Senate passed the bipartisan infrastructure package that would provide funding for repairing roads and bridges, among other things. The bill must still be approved by the House, where Speaker Nancy Pelosi said she will not bring the measure to a vote unless the $3.5 trillion human infrastructure package also passes in the Senate, where Democrats have pledged to use the budget reconciliation process to circumvent a Republican filibuster. Doing so would allow Senate Democrats to pass the bill with 50 votes.
In stocks, infrastructure-linked names, including Caterpillar Inc., Fluor Corp. and Martin Marietta Materials Inc., were outperforming after the infrastructure vote.
Here’s what’s next for the $1 trillion bipartisan infrastructure bill
*The Senate on Tuesday passed a bipartisan $1 trillion infrastructure package, sending the measure to the House.
*Progressive Democrats in the House, eager to make good on campaign promises ahead of the 2022 midterms, could pose a new set of hurdles.
*House progressives aren’t expected to make big changes to the infrastructure bill, but they insist the Senate pass a separate $3.5 trillion bill focused on poverty, health care and climate change.
The Senate on Tuesday passed a $1 trillion infrastructure package, sending the provision to improve the nation’s roads, bridges and broadband to the House for approval.
But progressive Democrats in the House, eager to make good on campaign promises ahead of the 2022 midterms, could pose a new set of hurdles to the bipartisan infrastructure plan.
Progressives aren’t expected to make dramatic changes to the infrastructure bill, but they insist that the Senate first pass a separate $3.5 trillion bill focused on poverty, climate change and health care.
The House is expected back from its recess Sept. 20.
News Around The web:
Earnings beat rate: With the vast majority of earnings season behind as of Friday, 87% of the S&P 500 companies that had reported second-quarter results exceeded analysts’ earnings estimates, according to FactSet. That so-called beat rate ranks above the 75% five-year average, and it’s currently the highest rate since FactSet began tracking that data in 2008.
Price check: A government report scheduled to be released on Wednesday will show whether a monthly spike in prices in June carried over into July. The Consumer Price Index released last month showed that prices surged 5.4% for the 12-month period that ended in June—the most in any 12-month period since 2008.
Views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.
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https://jasonzweig.com/this-day-in-financial-history/ (This day in Financial History)
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