Advisors - August 3, 2021
Monthly Market Wrap: July 2021
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With the US closing in on a 50% full vaccination rate against COVID-19, many have been enjoying a return to their regularly scheduled lives and summer fun while others remain cautious. A recent surge in the “delta variant” has daily cases in the US on the rise again, and various state and local governments are heeding CDC recommendations such as mask requirements for inoculated individuals while indoors.
Like the proverbial pebble in your shoe, COVID-19 continues to be a real heel. A glimmer of hope: COVID-related deaths are falling and the ratio of coronavirus deaths per day to cases per day is similarly declining. The vaccine is doing its job by reducing the severity of COVID-19 cases and preventing deaths.
Also in July, after a year of fans waiting and athletes aging, we finally get to see the world’s best compete in Tokyo for the summer Olympics. However, extra attention has been paid to the cost of these particular games, especially due to the economic impact of no fans being allowed to spectate. Japan’s General Debt Outlook jumped a full 21% in 2020, with its current debt level being projected out through 2026. Economists, event experts, and surely the country of Japan will be watching closely to see how the most expensive Olympics ever will be paid off. (Ultra-long term 40-Year Japanese bonds, anyone?)
As everyone tries to enjoy what’s left of summer 2k21, we’ll take a few moments to look at these key developments from July:
• Off the YCharts! The Road to Wealth
• Major Index Returns: Emerging Markets Fade
• Sector Movement: 9 of 11 Positive, Energy Plummets
• Hot Stocks of the Month: Healthcare Heats Up
• Laggards & Losers: Travel Stalls, Energy Runs Out of Gas
• Economic Data: Job Openings at High, CPI Surging
Off the YCharts! The Road to Wealth
If you had put $10,000 into the SPDR S&P 500 ETF Trust when it first went public in January of 1993, you would have added another 0 to that figure this month. Including dividends, that same $10,000 investment actually yielded $170,000, a 16x return over just under three decades and a fair share of corrections, bubbles, and crises along the way.
Though one thing of note — as we pointed out in our Economic Update for Q2 — equity valuations are stretched according to the “Buffett Indicator”, which measures Total Market Capitalization against GDP. According to believers, a 1:1 ratio typically represents fair valuation for markets, while a higher figure indicates potential overvaluation. Going forward, investors will be wondering: can these levels be sustained? (YCharts users: you can find the full Quarterly Economic Update deck in the Support Center. Not a current client? Reach out to get access.)
Major Index Returns: Emerging Markets Fade
The S&P 500 rose 2.4% in July thanks to Q2 earnings that beat out expectations for most constituents. The NASDAQ finished July up 1.2%, while International Developed Markets inched 0.8% higher. High-yield corporate bonds added 0.4% while the Global Aggregate Bond Index rose 1.3%, but the big story in July was MSCI’s EM index tumbling 6.7% largely in part to the major Chinese stock sell-off, which wiped out the index’s 2021 gains. MSCI’s China index fell 14.2% in July alone, and its Emerging Markets index is 37.5% weighted in China.
Sector Movement: 9 of 11 Positive, Energy Plummets
July was a mostly positive month across the board, with Health Care’s 4.9% gain leading the way. Real Estate, Utilities, and Technology were not far behind, rising 4.6%, 4.3%, and 3.9% respectively. Financials slipped half a percent, but the big loser was Energy, finishing July down 8.3% and having sunk over 12% at one point midway through the month as a result of weak oil prices.
Hot Stocks of the Month: Healthcare Heats Up
Six of July’s top ten S&P 500 performers hail from the healthcare space: West Pharmaceutical Services (WST), Bio-Rad Laboratories (BIO), PerkinElmer (PKI), HCA Healthcare (HCA), DexCom (DXCM), and Moderna (MRNA), the last of which surged 50.5% in July and topped our hot stocks table thanks to strong COVID-19 vaccine sales in Asia and receiving a golden ticket to join the S&P 500. Fast-casual restaurant Chipotle Mexican Grill (CMG) can attribute most of its July gain to blowout earnings and year-over-year growth.
Laggards & Losers: Travel Stalls, Energy Runs Out of Gas
#Hotstocksummer was brought to an abrupt halt in July for leisure travel companies Las Vegas Sands (LVS), Wynn Resorts (WYNN), Norwegian Cruise Line Holdings (NCLH), Carnival (CCL), and Caesars Entertainment (CZR), as both EPS and revenue reports for Q2 generally missed expectations across the board. An unfavorable epidemiological outlook, along with Las Vegas reintroducing mask mandates and the CDC’s attempt to prevent cruise liners from resuming operations, pushed these companies to the bottom of the July barrel. Energy companies DiamondBack Energy (FANG), Occidental Petroleum (OXY), Marathon Oil (MRO), and Phillips 66 (PSX) were all hit hard, due in part to U.S. crude oil sinking below $70 per barrel in July.
The nine leisure travel and energy companies were joined by packaged goods stock Lamb Weston Holdings (LW) to round out July’s ten worst performers.
Featured Market & Advisor News
What’s the Optimal Rebalancing Strategy? (YCharts)
Alternative investment sales skyrocket in 2021 (InvestmentNews)
Assessing the Tax Implications of Bitcoin (WealthManagement.com)
Economic Data: Job Openings at High, CPI Surging
June’s unemployment rate clocked in at 5.9%, a 10 basis point uptick compared to May. Initial jobless claims fell to an even 400,000 as of July 24th, hovering near pandemic-era lows but still around double what they were in early 2020. Job openings, however, stand at an astounding 9.21M as of May, the highest level since at least 2000.
Production and Sales
US New Single Family Houses Sold sank 6.6% in June, the third consecutive month of declines and biggest drop of the three. Coincidentally, Existing Home Months’ Supply rose by 10 basis points for the third consecutive month, to 2.6 in June. The hot housing market continued in June, keeping the US house price index MoM change at 1.7%, its second-largest result on record just behind May 2021.
Have a great August! 📈
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