Concerns about the COVID-19 delta variant causing a downturn in economic prospects drove stocks sharply lower on Monday, before corporate earnings results and investors “buying the dip” led to a quick turnaround by the end of the week. The S&P 500 Index, Dow Jones Industrial Average, and NASDAQ Composite Index all touched new record highs on Friday.
Unemployment data remained uneven, underscoring the labor market’s choppy path back to pre-pandemic strength. Weekly first-time unemployment claims unexpectedly rose to 419,000, while continuing claims declined marginally to 3.24 million. For further insight into employment and its effect on financial markets, refer to our second quarter investment commentary.
For the week, the S&P 500 Index finished up 2.0%, while the Dow Jones Industrial Average gained 1.1%. Year to date, the S&P is up 17.5%; the Dow has gained 14.6%. Since the pandemic low of last March 23, the S&P 500 has risen 101.3% and the Dow is up 92.5%. While it may have been extremely challenging to maintain perspective during the spring of 2020, these stock returns stand as a testament to maintaining a longer-term outlook while processing short-term economic shocks.
The unease in Monday’s stock trading appeared to center around the uptick in COVID-19 cases, specifically attributable to the delta variant. This sentiment led to a broader move away from riskier assets like stocks, driving prices lower more than typically caused by normal profit-taking around all-time market highs. However, almost just as quickly, positive earnings results changed the focus from concern about the coronavirus back to the strength of the U.S. economy. More than 80% of S&P 500 companies reporting second quarter earnings thus far have beaten estimates! Additionally, consensus expectations are for S&P 500 corporate earnings as a whole to increase 65% over second quarter 2020 levels. A final likely catalyst for the reversal in stock prices this week is the more than $2 trillion of excess consumer savings accumulated during the pandemic – seemingly just waiting to be invested at any sign of a market pullback.
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