Market Indexes: All 4 indexes fell this week, for the 1st time in a month, with the Russell small caps retreating -5%, its worst weekly decline since October, as investors grew wary again about inflation.
“Accelerating inflation raises concern about the sustainability of the economic expansion. Treasury yields fell for a 3rd consecutive week. Fed Chief Powell defended the central bank’s accommodative stance for a second time in two days on Thursday in his testimonies to lawmakers. The Fed’s stance underscores a growing divergence among global central banks on their response to growing price pressures. Policy makers from New Zealand to Canada and the U.K. are turning hawkish, making investors wonder how long could the Fed afford to remain dovish.” (Bloomberg)
Volatility: The VIX rose 14% this week, ending the week at $18.45.
High Dividend Stocks: These high dividend stocks go ex-dividend next week: Horizon Technology Finance (NASDAQ:HRZN), Dynex Capital (NYSE:DX), LTC Properties (NYSE:LTC), Solar Senior Capital (NASDAQ:SUNS), Gladstone Capital Corporation (NASDAQ:GLAD), Gladstone Commercial Corporation (NASDAQ:GOOD), Gladstone Investment Corporation (NASDAQ:GAIN), Sachem Capital (NYSE:SACH).
Market Breadth: 13 out of 30 Dow stocks rose this week, vs. 14 last week. 32% of the S&P 500 rose, vs. 43% last week.
FOREX: The US dollar fell vs. the yen, and the NZD, but rose vs. other major currencies this week.
Economic News:
“U.S. retail sales unexpectedly increased in June as demand for goods remained strong even as spending is shifting back to services, bolstering expectations that economic growth accelerated in the second quarter.
Sales surged 18.0% compared to June last year and are now well above their pre-pandemic level. Demand shifted to goods like electronics and motor vehicles during the pandemic as millions of people worked from home, took online classes and avoided public transportation.
Spending is now rotating back to services like travel and entertainment, with at least 160 million Americans fully immunized against COVID-19. Retail sales are mostly goods, with services such as healthcare, education, travel and hotel accommodation making up the remaining portion of consumer spending.
Receipts at auto dealerships fell 2.0% after declining 4.6% in May. Sales at clothing stores increased 2.6%. Consumers increased spending at restaurants and bars, leading to a 2.3% rise in receipts. Sales at restaurants and bars increased 40.2% compared to June 2020.
Receipts at electronics and appliance stores rose 3.3%; sales at furniture stores fell 3.6%. Sales at sporting goods, hobby, musical instrument and book stores dropped 1.7%. Receipts at food and beverage stores gained 0.6%. Sales at building material stores fell 1.6%.
Online retail sales rose 1.2%, likely lifted by Amazon’s Prime Day, which was emulated by other retailers.” (Reuters)
“The Consumer Price Index climbed by 5.4 percent in the year through June, the Labor Department said, as prices for used cars and trucks increased rapidly. The increase was more than the 5 percent increase reported in May and was the largest year-over-year gain since 2008.” (NY Times)
“U.S. consumer sentiment fell sharply and unexpectedly in early July to the lowest level in five months as inflation worries dented confidence in the economic recovery, a survey showed on Friday.
The University of Michigan said its preliminary consumer sentiment index fell to 80.8 in the first half of this month – the lowest since February – from a final reading of 85.5 in June. Economists polled by Reuters had forecast the index would rise to 86.5.
“Consumers’ complaints about rising prices on homes, vehicles, and household durables has reached an all-time record,” Richard Curtin, the survey director, said in a statement.
The survey’s gauge of current economic conditions also fell to a reading of 84.5, the lowest since August 2020, from 88.6 in June. Its measure of consumer expectations slid to 78.4, the lowest since February, from 83.5. The survey’s one-year inflation expectation shot to the highest level since August 2008 at 4.8%, up from 4.2%, while its five-year inflation outlook ticked up to 2.9% from 2.8% in June.” (Reuters)
“Business inventories rose 0.5% after edging up 0.1% in April, the Commerce Department said on Friday. Inventories are a key component of gross domestic product. May’s increase was in line with economists’ expectations.
Inventories increased 4.5% on a year-on-year basis in May. Retail inventories decreased fell 0.8% in May as estimated in an advance report published last month. That followed a 1.7% decrease in April.
Motor vehicle inventories decreased 5.5%, rather than 5.3% as estimated in an advance report published last month. A global semiconductor shortage is undercutting auto production, leading to stocks being run down and prices of used car and trucks soaring, boosting inflation.
Retail inventories excluding autos, which go into the calculation of GDP, increased 0.9% as estimated last month.” (Reuters)
Week Ahead Highlights:
Q2 ’21 Earnings season gains momentum, as 9 DJIA stocks report next week, including IBM (NYSE:IBM), Johnson & Johnson (NYSE:JNJ), Verizon Communications (NYSE:VZ), Coca-Cola (NYSE:KO), and American Express (NYSE:AXP). 14% of the S&P 500 will report.
Next Week’s US Economic Reports:
Sectors: The defensive Utilities sector led this week, while the Energy sector lagged.
Futures: WTI Crude fell -4.5%, ending at $71.17.
