Week from 19 to 25 July 2021
Optimism about the global economy enjoyed a significant boost throughout the week, with stronger than expected corporate earnings. Yet investors had every reason to be concerned about economic growth as coronavirus cases surged everywhere, forcing many countries that struggle against the highly contagious delta variant to new curfews and lockdowns. Moreover, data also showed a surprise rise in weekly jobless claims in the US. They climbed by 51,000 to 419,000, from 11 to 18 July, a two-month high compared with an estimate of 350,000 applications.
But investors decided to turn to stocks shrugging off Covid worries. The S&P 500 rose 1.96% week-over-week. The Dow Jones Industrial Average gained 1.08%, above 35,000 for the first time ever. The Nasdaq was up 2.84%. Small cap stocks broke their three-week losing streak (Russell 2000 up 2.15%). In Europe, the MSCI EMU scaled a record peak (148.02, +1.82%). By contrast, APAC equity markets closed mixed (Nikkei down 1.63%, Shanghai Composite up 0.31%, Kospi down 0.69%, S&P ASX 200 up 0.63%).
On the interest rate front, Treasury yields were on the back foot following the latest health data. The US 10-year yield finished the week around +1.28% after dropping to +1.14% in the Tuesday session. Core European benchmark yields were trading at five-month lows (10-Year Bund yield at -0.42%, French OAT yield at -0.09%).
Second-Quarter Results Top Analysts Estimates
Most listed companies have surpassed analysts’ profit expectations. This trend is well illustrated with Snaps Q2 results (revenue rising 116.2% year-over-year) that were dramatically ahead of both Wall Street estimates and the companys forecasts. As a result, the shares of the social media company skyrocketed to an all-time high ($77.97, +31.46% week-over-week).
Against this backdrop, most of the S&P 500 sectors gained momentum. Communication services led the pack (+3.24%) thanks to Facebook (+8.39% in the wake of Snap) and Google (+4.76%). Consumer discretionary (+2.85%), information technology (+2.77%) and health care (+2.18%) also had a solid finish. Only two sectors remained below the flatline: energy (-0.39%) after U.S. oil stockpiles unexpectedly rose last week and utilities (-0.87%) due to profit taking as this sector had been the best performer over the last two weeks.
Relentless Bond Rally
Nothing seems to stop the drop in U.S. Treasury yields. Their downward trajectory pushed again investment grade corporate bond prices higher (+0.25% in Europe, +0.13% in the U.S.). High-yield bonds followed suit though to a lesser extent (+0.02% in Europe, +0.10% in the U.S.). On the other hand, emerging debt failed to stay afloat (-0.46% in local currencies) as the greenback was mildly firmer against a basket of major currencies (dollar index at 92.912, or +0.24% over the week). Elsewhere, gold lost some of its recent safe haven appeal after four positive weeks, with its spot price falling 0.55% to $1,802.14 an ounce.
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