U.S. stock indices traded in a narrow band before finishing slightly down for the week. Strong corporate earnings and supportive monetary and fiscal policies appear conducive to further stock gains in the intermediate term, even as short-term volatility caused by delta variant concerns remains likely.
For the week, the S&P 500 Index finished down 0.4%, and the Dow Jones Industrial Average declined 0.4%. Year to date, the S&P is up 17.0%; the Dow has gained 14.1%. Weekly first-time unemployment claims fell to 400,000, while continuing claims increased to 3.27 million. Neither result was as positive as economists’ consensus expectations. There is little doubt that the labor market remains in flux as we continue to work our way out of the significant disruption to employment brought on by the pandemic. June U.S. consumer spending reported its second-highest annualized growth rate (11.8%) since 1952, benefiting from not only a strong desire to “do things” after being under COVID-related restrictions for an extended time, but from the trillions of dollars of excess savings accessible for consumption. As consumer spending comprises more than two-thirds of U.S. economic activity, this desire and liquidity combination portends well for continued economic growth.
While second quarter U.S. GDP growth of 6.5% (annualized) was strong, it was held back from greater heights by ongoing supply-and-demand disruptions cascading through the economy. Inventories of goods was a sizeable negative factor restraining GDP growth this quarter, as many businesses drew down their inventories to meet consumer demand but were unable to immediately replenish goods due to supply chain issues. Although this situation is partially slowing growth at present, the silver lining is greater potential for stronger future growth once these supply issues are resolved.
Internationally, the delta variant continues to negatively affect some countries (e.g. India and Brazil) with lower vaccination rates than in America. Additionally, reports this week that China is more heavily regulating industries such as technology, education, and food delivery helped move Asian stock markets lower this week.
Global diversification remains a key investment tenet for us. One of the ways we navigate the higher uncertainty of international markets is by allocating a portion of our non-U.S. stock holdings to an active manager – GQG Partners – that has a strong team of analysts and a unique process that synthesizes information from around the globe to identify investment opportunities. To learn more about our thoughts around investing, please review our Q2 investment commentary. We also encourage you to review our recent article on how to protect yourself against fraudulent push notifications.
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