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Weekly Market Update for August 13, 2021

by JM Hanley

It was a sleepy summer week on Wall Street. Stocks moved upward steadily if slowly. Cyclicals, and to a lesser extent value stocks, were better than growth companies after weeks of underperformance. Treasury yields rose midweek but then retreated; preferreds moved inversely. The S&P 500 finished the week up 0.7%; the Nasdaq was nearly flat. Banks, Materials, and Industrials outperformed.

Wednesday’s release of inflation data was most anticipated. It came in lower than expected. Excluding food and energy, inflation slowed down compared to the prior month. One major factor was used car prices, which decelerated sharply after months of significant increases. The cost of rent also increased less than expected. Readouts from other sources suggests the number used for rent is improbably low, possibly because of data delays. And looking past cars and businesses reopening after the pandemic, inflation remains about as fast as it was last month, about half again higher than the pre-pandemic trend.  A subsequent release Thursday (PPI, a metric favored by the Fed) told a similar story.

These takeaways were juxtaposed with rising concerns about the Delta variant, which would put a damper on demand and thus slow inflation. After the report, bond yields initially increased. Then today, one survey showed consumer confidence falling dramatically, to its lowest level since 2011, due to concerns about a covid resurgence. Yields have since largely retreated to where they started the week.

Fed members also contributed to the unsettled state of affairs. In public remarks Monday, two members urged the rest of the Fed to slow its bond-purchasing program in September, earlier than the market is currently expecting. That would drive yields up. The next day, two other Fed members refuted that view. The rising prominence of changes to Fed policy seems to have made some fixed income investors nervous, resulting in volatile trading for bonds and preferreds.

Next week will also be quiet. Tuesday will bring retail sales data and Wednesday, a number of updates on the housing market. A number of major retailers will also report second-quarter earnings next week. Home Depot and Walmart will report on Tuesday, followed by Lowe’s and Target on Wednesday.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

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