Investors who fear that the Fed will start tapering bond purchases sooner than expected has those fears eased last week with the Fed's statement and Chairman Powell's prepared remarks. Investors will be focused on the Jobs Report this week, as the Fed has stated that the Labor Market is one of the key metrics they will use to determine when to begin tapering. In the meantime, a rise in COVID cases has sparked fears of slowing growth (more on that in a minute).
Last week, the economic data was positive overall. Housing data disappointed as home buyers have adapted to higher inflation and surging home prices. While the average home is only staying listed on the market for 14 days (25 days fewer than this point last year), the average seller is not planning on immediately purchasing an existing home. This showed up in the data last week. The consumer, though, looks to be alive and well. Personal Income, Consumer Spending, and Consumer Confidence were all higher than expected and increased month-over-month. Weekly Jobless Claims were higher than expected, but dropped week-over-week.
When we look at earnings, the cyclical names are trending as earnings growth is higher among those sectors. Industrials, Consumer Discretionary, and Financials lead all sectors with the highest earnings growth rates quarter-over-quarter. Despite this good news, supply chain issues and inflation concerns still linger. Container ships stuck at port had reached a low in mid-June, but have steadily risen recently. Ships anchored at port in Los Angeles/Long Beach have increased 170% since June 19th. Labor issues are still prevalent in states continuing to pay extended pandemic benefits. In states that ended pandemic benefits, work search activity increased 28% in May and unemployment claims have decreased 30% since May 8th in those states. Until all extended benefits cease, labor shortages will continue in certain areas. This will add to inflationary pressures as employers continue to up the ante with higher wages and benefits.
Lastly, rising COVID cases has stirred fears of slowing growth. Cases are up, but hospitalizations are not out of control yet and deaths have not corresponded with higher cases as they did in the Fall of 2020. Fears over the Delta variant are misplaced when the data is analyzed. For those fully & partially vaccinated in developed countries, deaths do not appear to result from the Delta variant. Of the 164 million vaccinated Americans, only 0.07% had a breakthrough case of Delta variant, 0.004% were hospitalized, and 0.001% resulted in death. Yet the media continues to stoke fears by not quoting cases in context of deaths. This writer even discovered one publication that falsely overstate new COVID cases by more than 30,000 last week.
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