A slight increase in volatility saw major stock indices decline in value before rallying on Friday to finish modestly down in weekly trading. Because the S&P 500 Index has not had a 5% pullback since last October, any downward move seemingly has the potential to raise concern. As always, however, markets go up and down as a regular course of business – notwithstanding the remarkable run-up of the past year! Even in the face of unsettling global events (the fall of Afghanistan, increased Chinese regulation of certain industries, rising delta coronavirus variant cases), the medium-term economic outlook remains promising.
For the week, the S&P 500 Index finished down 0.6%, while the Dow Jones Industrial Average fell 1.1%. Year to date, the S&P is up 18.3%; the Dow has gained 14.8%. The labor market showed signs of continued healing; weekly first-time unemployment claims fell to 348,000, while continuing claims declined to 2.82 million. Pandemic-induced enhanced unemployment benefits are set to expire on September 6; expectations are for a swift pickup in employment figures in the coming months.
U.S. retail sales fell by 1.1% in July, more than a consensus of economists expected. However, this doesn’t mean that the economy is stalling. First, it was always clear the elevated spending numbers of the spring and early summer (once the U.S. more broadly reopened) were going to be unsustainable in the long-term. Second, consumer spending has transitioned partially away from goods and more toward services. This is a natural evolution as travel activities rebounded during the vacation season. Additionally, U.S. corporate earnings remain a bright spot. In the second quarter, S&P 500 companies reported a year-over-year aggregate 93% earnings growth – with 87% of companies beating analyst earnings expectations.
Supply-and-demand imbalances continue to plague several industries, particularly automotive and housing. Several auto manufacturers have disrupted or halted production due to pervasive semiconductor shortages. In addition, the short supply of homes for sale led to the highest recorded median price for single-family homes in the second quarter – up 23% from the same time last year. We still believe that the price disruption caused by the pandemic’s effect on supply chains will dissipate over time as equilibrium is re-established; however, we are expecting additional gyrations along the way. Whatever the future holds, you can count on Planning Alternatives to be there for you every step of the way.
As always, please contact us with any questions.