Stocks suffered their worst week in quite some time, as each of the major indexes ended the week lower. Last week was the start of the second-quarter corporate earnings reporting period. Attention will be paid to reported earnings to gauge whether corporate profits can support equity valuations. Despite the Fed Chair’s repeated statements that the recent spike in inflation is temporary, last week’s rise in the Consumer Price Index and the Producer Price Index are likely to add fuel to the debate about the timing of the Federal Reserve’s stimulus reduction.
For the week, the Russell 2000 sank 5.1%, followed by the Nasdaq, the Global Dow, the S&P 500, and the Dow. Crude oil prices decreased for the second consecutive week, but are still well above their 2020 year-end price per barrel. The yield on 10-year Treasuries decreased 5 basis points, the dollar increased 0.67%, and gold prices increased marginally. The market sectors closed the week with mixed returns. Consumer staples (1.3%), utilities (2.6%), and real estate (0.7%) were the only sectors to advance. The remaining sectors decreased, led by energy (-7.7%) and materials (-2.4%).
Last Week’s Economic News
- Consumer prices have now risen 5.4% over the past 12 months after advancing 0.9% in June. According to the latest Consumer Price Index, the June increase was the largest one-month change since June 2008, when the index rose 1.0%.
- Producer prices climbed 1.0% in June following increases of 0.8% in May and 0.6% in April. For the 12 months ended in June, producer prices have increased 7.3% — the largest advance since 12-month data was first calculated in November 2010.
- In a potential sign of mounting inflationary pressures, both import and export prices advanced in June.
- Retail sales increased 0.6% in June following May’s revised -1.7% dip. Retail sales are 18.0% above their June 2020 pace. Retail trade sales were up 0.3% from May 2021, and 15.6% above last year.
- According to the latest report from the Federal Reserve, industrial production increased 0.4% in June after moving up 0.7% in May. Overall, total industrial production in June was 9.8% above its year-earlier level but 1.2% below its pre-pandemic (February 2020) level.
- The government budget deficit was $174.2 billion in June, a 32.0% increase over the May deficit but 80.0% lower than the pandemic-impacted June 2020 deficit. Individual income tax receipts have risen 62.0% in fiscal year 2021, and corporate income taxes are up 188.0%.
Eye on the Week Ahead
The latest data on housing starts and existing home sales is available this week. While the housing sector has been an area of strength throughout much of the past year, it has begun to slow over the past few months. The number of building permits and housing completions fell in May, while housing starts increased. Existing home sales also fell in May, the fourth consecutive monthly decline. Analysts suggest that activity in the housing sector is approaching pre-pandemic activity levels. A lack of available inventory and escalating prices are prominent factors in holding back sales.
Have a nice week!
Sincerely,
Robert G. Carpenter