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Weekly Market Update for July 30, 2021

by JM Hanley

After touching record highs, the major indexes took a week off. Good news from the Federal Reserve and a generally strong earnings season only partly offset some weak economic data points and a few high-profile earnings disappointments. The SP 500 finished the week down 0.4%, although the Nasdaq was down over a percent. Materials, energy, and financials, which had underperformed, did best this week. Technology and other growth industries were weakest.

Economic data was largely (though not entirely) disappointing. Second-quarter GDP growth turned out to be lower than expected. “Reopening” industries did well, but they were offset by lower government spending and a decline on construction. Disappointing June readouts for core GDP components like inventories and durable goods seem to indicate this pattern continued. The Fed’s preferred inflation metric (PCE) even came in light of expectations. And this past week, new and continuing jobless claims were weaker than expected. The housing market also continues to experience turbulence. New home sales and pending home sales unexpectedly declined, even as home prices increased. Consumers nonetheless remain optimistic. Two different measures of consumer confidence rose, and personal spending rebounded in tandem.

The Federal Reserve’s meeting this Wednesday brought few surprises. Chairman Powell remains sanguine about the risks of inflation. The market is most interested in when the Fed will begin “tapering,” or slowing its purchases of Treasury bonds (and some others). This measure has been used to support the economy during the pandemic. The Fed seemed to indicate it was less likely to announce tapering at its September meeting. That news was a tailwind for markets for the rest of the week.

Major corporate earnings came in rapid succession. Medical procedures that were postponed with the virus rampant and hospitals full can now be performed. Device manufacturer Boston Scientific benefitted as a result. Revenues and earnings were good at Visa. Travel, entertainment, and restaurant card spending is approaching pre-pandemic levels. Apple reported excellent results despite the headwind posed by a worldwide shortage of computer chips. Despite already-strong uptake, demand for the new iPhone remains robust. Google also did well. Advertising for retail was particularly strong, and ads for travel have nearly returned to their pre-pandemic trend.

Facebook, the other major online advertiser, was worse than expected. Advertising revenues and profits for the past quarter were strong. However, the company said growth would slow in the second half of the year. A coming iPhone update will make it more difficult to track the owner’s online activity, which in turn will make Facebook’s ad targeting less profitable. Amazon was also a disappointment. As other activities have reopened, consumers have spent less time shopping online, and growth slowed as a result. Conversely, as corporate budgets and planning get back to normal, the cloud computing business has picked up.

Nonetheless, earnings have been strong overall. Half of companies in the SP 500 have reported, and a record number are beating analysts’ estimates. Earnings have been 18% better than expected, on average, and revenues have been 5% better. And nearly 80% of companies have increased their estimated profits for the year – the highest since at least 2012. Electronic Arts, Axon, CVS, and FIS, among others, are scheduled to report earnings next week.

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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