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Weekly Market Update for August 6, 2021

by Jim Ulland

90% of the largest 500 corporations have reported earnings from Q2. What are the CEOs saying on their conference calls? First, they are very happy since over 86% of them beat the earnings that analysts had forecast. In aggregate, the earnings exceeded expectations by 17%. 87% of the companies also beat revenue expectations. Many of the CEOs mentioned pricing pressures on their input costs and labor as well as supply constraints. Yet, there were few who said that cost pressures or the Delta variant had slowed order or reservation patterns. Both the NASDAQ and the SP 500 set records during the week.

One thing the Delta variant has done is to urge more to become vaccinated. Perhaps the corporate leaders expect the higher levels of vaccination to blunt the impact of the new Covid variant. Most of those being hospitalized have not been vaccinated. Corporations are struggling to manage employees during the new Delta spike. Some are requiring vaccinations or weekly tests as an alternative. This month, Pfizer expects its vaccination to go from “emergency authorization” to “approved.” Some of the hesitancy in being vaccinated is from those who view the “emergency” status as suggesting that those being vaccinated are participating in the world’s largest drug trial. Official approval should reduce this concern.

Despite the Delta variant and parts shortages, a lot more jobs were created in July, almost a million. This reduced the unemployment rate from 5.9% to 5.4%. In addition, the number of workers on unemployment declined, as did new unemployment filings. More people working increases consumer purchases, another boost to growth. The narrative from the CEOs was that growth and higher earnings will continue for the rest of the year.

As a result of the strong economic news, interest rates rose, but this only recaptured some of the recent decline. Somewhat higher rates are welcome by banks who earn very little on excess deposits when rates are low. Our Intelligent Fixed Income strategy is up between 4-4.75% so far this year and was unfazed by today’s rise.  We recommend selling corporate bonds, government bonds, and CDs, all of which pay next to nothing. Stocks can support higher prices now that strong earnings are evident. China is one of the few areas where we are reducing exposure. The new government crackdown on the technology sector has made China much less appealing.

Both the SP 500 and the Nasdaq set more than one record by Friday. For the week, the Nasdaq gained +1.11%. The SP 500 rose +0.94%. Monday the SP 500 was down -0.18%, Tuesday +0.82%, Wednesday -0.46%, Thursday +0.60%, and Friday +0.17%.

Next week there will be the last few large corporate Q2 earnings reports as well as many reports from small companies. Some headlines will be driven by the infrastructure bill which is scheduled for a vote in the US Senate, Saturday 8/7. The biggest fight will be on the following bill called a human “infrastructure” bill which contains both a lot of inflationary-loaded spending and numerous tax raises. The southern border will continue to be in the news particularly since those entering the country illegally have not been vaccinated. More fuel for the political fire.

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.

Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategy vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision. See www.ullandinvestment.com for important strategy disclosures.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investing involves risk; principal loss is possible. Investors should consider the investment objectives, risk, charges, and expenses of the strategy carefully before investing. This and other important information can be obtained by contacting Ulland Investment Advisors.

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Ulland Investment Advisors

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