August Economic Update
Last month, the major stock market indices moved higher to end the month with respectable gains, overcoming fears of higher inflation and increasing rates of COVID-19 cases. July was a choppy month as the markets digested a jump in consumer prices and the continued spread of the Delta variant.
Stocks took a breather in the final week, despite the Federal Reserve's renewed assurances that its near-zero interest rate policy would remain in place. The Dow Jones Industrial Average picked up 1.25%, the S&P 500 Index gained 2.27%, and the Nasdaq lagged climbing 1.16%. (1,2)
Earnings season was in full swing last month as nearly half of S&P 500 companies had reported earnings, with 91 percent of those companies beating Wall Street’s estimates. Companies also reported strong sales, topping estimates by nearly 24%. (3)
The rise in global COVID-19 cases last month unsettled investors, who have raised concerns about what this new viral spread could mean for economic growth. Some experts expect the recent surge to peak in August, while others see a peak in mid-September to early October. As of the date of this newsletter, the seven-day average for new COVID-19 infections has reached 100,000 cases per day. The uptick in cases will likely not mirror the experience seen in 2020. However, some investors may remain watchful as local, state, and federal entities weigh further restrictions. (4,5)
Federal Reserve Pivot
The Federal Reserve reaffirmed that its monthly bond purchase program would continue until the Fed sees substantial progress in its inflation and employment goals. Since the first wave of COVID infections began in early 2020, the Federal Reserve has supported the bond market by purchasing corporate bonds and mortgage-backed securities.
“Our asset purchases have been a critical tool,” Fed Chair Jerome Powell stated. “They helped preserve financial stability and market functioning early in the pandemic and, since then, have helped foster accommodative financial conditions to support the economy.” (6)
Some analysts have suggested that the Federal Reserve’s assessment of economic progress was potentially a hint that the tapering of bond purchases may be close. However, this will likely now be dependent on the outcome and impact of the new Delta variant and the economic impact it may cause.
With earnings season coming to a close, investors and analysts will be closely monitoring the spread of the Delta variant to gauge its impact on consumer confidence, employment, and the overall health of the economy. While we will likely reach all-time highs in the number of COVID cases within the next 1-2 weeks, there is much debate regarding whether local officials and the Federal Government will impose lockdown restrictions. It will likely be determined by the number of hospitalizations which occur and the implications of breakthrough cases for vaccinated individuals.
As always, we remain cautiously optimistic that we will see continued growth for the U.S. economy while also planning for any challenges which may lie ahead. We hope you and your family take full advantage of the rest of this summer while staying safe and healthy!
Monthly Financial Tip:
Does the cost of your homeowner’s insurance seem too high? Raising your deductible, installing an alarm, or even moving your coverage over to an insurer with whom you have other kinds of policies might potentially save you some money.
1. The Wall Street Journal, July 31, 2021
2. The Wall Street Journal, July 28, 2021
3. Twitter.com/EarningsScout, July 29, 2021
4. Johns Hopkins Bloomberg School of Public Health, June 17, 2021
6. FederalReserve.gov, July 28, 2021
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.