Performance for Week Ending 6.25.2021:
The Dow Jones Industrial Average (Dow) finished up 3.44%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 2.91%, the Standard & Poor's 500 Index (S&P 500) gained 2.74% and the Nasdaq Composite Index (NASDAQ) tacked on 2.35%. Sector breadth was positive with all eleven of the S&P sector groups closing higher. The Energy sector (+6.66%) paced the gains followed by Financials (+5.28%) and Industrials (+3.04%).
||Closing Price 6/25/2021
||Percentage Change for Week Ending 6/25/2021
||Year-to-Date Percentage Change Through 6/25/2021
*See below for Index Definitions
MARKET OBSERVATIONS: 6/21/21 – 6/25/21
Stocks finished the week solidly higher with the S&P, Nasdaq, and Wilshire indices posting fresh all-time highs during the week. The Dow, which remains about 1% below its all-time high reached in early-May, posted the biggest advance and its largest gain since mid-April reflecting its high concentration of cyclical stocks. The cyclical bias was very evident in sector performance with Energy, Financials and Industrials posting the best gains on the week. Last week's gains suggest that the potential for the massive infrastructure plan, coupled with the Fed's vow to keep interest rates at near zero percent for at least the next two years, sets the stage for a bullish backdrop for equities heading into the second quarter earnings season, where collective S&P 500 profits are expected to rise by more than 60%.
Infrastructure Proposal: On Thursday, President Biden announced that the White House has struck an infrastructure deal with a group of bipartisan senators. According to media reports, the deal would finance a range of programs, including the largest investment in public transit in U.S. history, repairs to roads and bridges, a network of 500,000 chargers for electric vehicles, the elimination of lead service lines in the nation's water systems, expansions of broadband internet service, cleaning up pollution and new, “resilient” power lines. The cost of the expenditures would be offset by a variety of revenue-raising provisions, including stronger enforcement of tax collections from the wealthy, sales from the Strategic Petroleum Reserve, unspecified “public-private partnerships” and assumptions that the infrastructure investments would lead to greater economic growth. While a preliminary deal has been reached it still has to be passed by both the House and Senate, which will be no small task. Despite touting the deal as a bipartisan win, President Biden hinted that he won't sign any physical infrastructure legislation without a human infrastructure bill like the American Families Plan, which has little to no support from Republicans. It's also worthwhile to note that while infrastructure improvements are much needed in this country, the impact to near term economic growth will likely be minimal as these type of projects come with long lead times.
Bullish Narrative Intact: We maintain our constructive view on risk assets and believe the macro environment will continue to provide a sturdy backbone for additional gains over the course of the year. The economic recovery has solid momentum and earnings expectations continue to trend higher. Based on consensus expectations from Bloomberg, earnings are forecast to grow by over 35 percent this year followed by over 12 percent in 2022. Lastly, despite the recent hawkish surprise from the Fed, monetary policy is likely to remain highly accommodative for the foreseeable future. While a near-term period of consolidation cannot be ruled out, we would view pullbacks as corrective and not the start of a broader move lower. Hence, periods of weakness would be viewed as buying opportunities.
The Week Ahead: The focal point in the coming week will be the June payroll report on Friday. According to Bloomberg, nonfarm payrolls are expected to grow by 700k following May's 559k reading, which in turn is expected to send the unemployment rate to a post-pandemic low of 5.7%.In addition to the jobs report, investors will focus their attention on consumer confidence during June, the June ISM manufacturing report, initial jobless claims and May construction spending. After a barrage of speaking events over the past week, the Fed speaking calendar will be relatively light with just seven events scheduled throughout the week. The kick-of to second quarter earnings remains a couple weeks out, although there are five members of the S&P 500 expected to release results during the week. Also of interest will be Wednesday's meeting of the Organization for Economic Cooperation and Development (OECD) where they will try to finalize a proposal to overhaul a global minimum corporate tax rate.
The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.
Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.
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