The Dow & S&P 500 Edge To Fresh Records… The S&P crept to a new high as investors were duly impressed by a host of impressive earnings reports. The ‘broad’ stock market gauge added 217 points or 0.2% to reach 4468 on Friday’s close, clinching its 48th record close of 2021. Impressive Indeed. The Dow Jones Industrial Average added 15 points or less than 0.1% to 35515, both fresh records. The tech heavy Nasdaq Composite edged higher 7 points or less than 0.1% to close out the week at 14822. The trading sessions were marked by ‘muted moves,’ with the major indexes pretty much hugging the flatline during the day. Still the S&P 500 and Dow managed to finish the week with invigorated highs for the fourth consecutive session, something that hasn’t happened since October 2017, according to Dow Jones Market Data. Interestingly stocks have inched higher during thin summer trading sessions, bolstered by repeated earnings growth and announcements by the biggest American Companies, even as the spread of the Delta Variant threatens to ‘sap some speed’ from the economic recovery., Around 86% of the S&P 500 constituents that have filed quarterly reports have beaten analysts expectations. “There’s been a lot of reasons for people to remain optimistic,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “I do think the stock market moves higher from here.” As previously noted, trading was listless this week, with many traders and money managers on vacation. Just under 3.4 billion shares of New York Stock Exchange-listed stocks changed hands on Thursday, well below the average daily volume for the year of almost 4.7 billion. “It’s a quiet market, the underlying tone still seems fairly positive, despite these background concerns,” said Paul O’Connor, head of multi asset at Janus Henderson Investors. In the bond market, the yield on the 10-year treasury note slipped Friday, but notched its second week of gains, settling at 1.297%. Yields fall as bond prices rise. A rather ho-hum bond market.
By the end of August, we may learn if the ‘golden era’ of investing will turn into a ‘bronze age.’ Federal Reserve Chairman Jerome Powell could more definitively signal an end to the easy-money policies that have propelled the equity market everhigher over the past 21 years, at the Fed’s annual summer gathering in Jackson Hole, Wyo., on August 26-28. Such a shift could make it harder to thrive in the stock and options market. Powell and other central bank leaders have already indicated that monetary-policy changes are forthcoming, but investor expectations have intensified before the policy symposium. The Jackson Hole meeting is always a major event, but this year might top them as the Covid-19 pandemic remains a menace to the world’s well being. Even if nothing happens at Jackson Hole, the financial sector is likely to become even more important in anticipation that something meaningful may happen at the year’s final three meetings of the Fed’s rate-setting FOMC (Federal Open Market Committee). For the past two decades, the Fed’s liberal policies have protected the stock market. “Terrorists attacks, the worst financial crisis since the 1929 crash, a viral pandemic, endless wars, and ‘political intrigue’ all failed to impede the stock market’s rise. The amount of wealth that has been created has been staggering–so stay agile. You want to be ready to alter course when the Fed changes the rules of the game,” writes Steven M. Sears, Barron’s.
The Lumber Bubble Is Over…Expect lumber prices to stabilize as the builder’s demand remains robust. “We expect prices to hover between $500-$600 per 1000 board feet, ” says Samual Burman, a commodities economist at independent research firm Capital Economics. Lumber prices have been on a roller-coaster ride because restricted wood supplies from sawmills met with increased demand for the material to construct homes. That combination has sent prices for futures contracts on the CME to an all-time high of $1,671 in May, up from $495 in late October. Recently those contracts have settled in the $530 range. Now that the ‘bubble’ has popped, the market will likely stabilize, neither rallying nor falling significantly. “We think the market is at the right level now,” says Shawn Hackett of Hackett Financial Advisors. “The lumber mills are still making really good money, so they won’t shut down supply,” Hackett says. Demand for housing remains high relative to available homes. The past decade of low housing construction has led to a housing shortage. Single-family housing starts should average around 1.2 million next year, up from one million this year, according to forecasts from Capital Economics. That compares favorably to the annual rate of less than a million throughout the period from August 2007 to November 2019, according to government data. As Mr. Burman says, “We expect demand for new homes to remain strong.”
RUMBLINGS ON THE STREET
Mitch McConnell, Senate Minority Leader Barron’s “If you’re going to find an area of potential agreement, I can’t think of a better one than infrastructure, which is desperately needed.”
Dave Donabedian, chief investment officer at CIBC Private Wealth US Barron’s “If you are just looking at the market action this week, it’s saying the Delta Variant is a public-health crisis, but not an economic crisis.”
Julian Emanuel, BITG Barron’s At some point, the bottom will end, and the market will get more volatile. And the biggest risk might be that investors use the volatility to push the entire stock market higher, notes Mr. Emanuel, treating it like one big ‘meme’ stock. “(The) dramatic price action in ‘meme stocks’ both old and new raises the probability that higher volatility could result in an ‘altered reality’ exception,” he writes. “And there’s only one previous exception where volatility went up and stocks continued to go up, and up, and up. At least for a while.” That, of course, was in 1999. Let’s hope we avoid the kind of excitement that followed.
Ed Yardeni, President Yardeni Research, Barron’s (Barron’s Article by Leslie Norton) “I’m in the roaring 2020’s camp. We’re in the early phase of a dramatic productivity boom. A lot of things that went wrong in the ’70s were attributed to inflation, but the biggest problem was that productivity collapsed.”