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Is the great reopening in jeopardy?

By Megan Horneman. © Verdence Capital Advisors

Key Takeaways 

  • Equities rally despite external factors testing sentiment.
  • GDP miss suggests better numbers ahead.
  • Manufacturing shows signs of hope in supply chain disruptions.
  • Bonds rally on COVID fears and equity volatility.
  • Reopening trade stalls; Growth resumes leadership.

The S&P 500 continued its streak of posting its best monthly gain of the year in July. Even with external factors threatening to test the rally, the Index did not disappoint. However, just as we have advanced with vaccines, another contagious COVID-19 strain, the Delta variant, emerged, increasing restrictions and regulations in economies.

Here is a review of July from an economic and market perspective.

  • U.S. GDP misses but still strong: The initial reading on 2Q21 GDP missed expectations, but the underlying details show room for growth. The GDP fell short because of inventory exhaustion and building, a result of COVID. However, consumer spending was up almost 12%.
  • Manufacturing clearing up bottlenecks: The ISM Index remained in expansion territory but decreased slightly. Things improved for the supply chain as inventories surged and backlogs of orders fell for the first time this year.
  • Inflation Peaking?: The Consumer Price Index rose at the fasted monthly pace since 2008. However, the Core PCE moderated slightly from 0.5% to 0.4% for the month.
  • Consumers spending on experience: Consumer spending is strong as Americans continue to spend on experiences rather than on household items.
  • Housing mixed: Housing struggled with high material costs and low inventories, but existing sales and housing rose for the month.

Fixed income: Ignores solid economic growth: The Bloomberg Barclays Aggregate Index posted its best monthly gain in over a year from the fear of new COVID variants and equity volatility.

  • Duration rotation: Long term bonds outperformed short term bonds (30YR vs. 2YR) for the fourth month in a row.
  • Quality counts: Investment grade credit outperformed high yield debt by the most since March 2020, and leverage loans fell for the first time since March 2020.

Global Equities: Drowning out the Noise. The new Delta variant has interrupted the reopening of trade in the U.S. while regulatory risks inhibited the emerging markets. However, the MSCI AC World Index still rose for the sixth consecutive month.

  • U.S. growth resumes leadership: Areas leveraged to the reopening trade of small and midcap value lagged the large-cap growth space because of the Delta variant spread.
  • Developed economies outperform EM: The U.K. And Europe outperformed the emerging markets thanks to the progress with vaccination programs. Asia was the worst E.M. region because of regulations.

Commodities run continues: Commodities continue to rally for the fourth consecutive month even with the concern of the Delta variant. Energy rallied from a U.S. heatwave that increased natural gas prices. In addition, copper rebounded as housing starts rose and improved demand.

 

Disclaimer:

This material was prepared by Verdence Capital Advisors, LLC (“VCA”). VCA believes the information and data in this document were obtained from sources considered reliable and correct and cannot guarantee either their accuracy or completeness. VCA has not independently verified third-party sourced information and data. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. This material is being provided for informational purposes only and is not intended to provide, and should not be relied upon for, investment, accounting, legal, or tax advice. 

Past performance is not a guarantee of future results.

Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product or any non-investment related content, made reference to directly or indirectly in these materials will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any discussion or information contained in this report serves as the receipt of, or as a substitute for, personalized investment advice from VCA. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. All indexes are unmanaged, and you cannot invest directly in an index. Index returns do not include fees or expenses.

 

 

 

By Megan Horneman