Global Stocks Rise, U.S. Tech to Report Earnings
Last Week Review
After declining 1.6% last Monday on concerns over the COVID-19 Delta variant, global equities bounced back and ended the week up 1.1%. Strong corporate earnings, the economic recovery and continued central bank support for the global economy compelled investors to buy. The surge in global equities masked a 1.9% decline in emerging market equities, driven by China’s regulatory pressure. The 10-year Treasury yield ended last week down 1 basis point at 1.28%. High yield credit spreads widened 7 basis points to 2.90%, but still sit at historically low levels.
U.S. Manufacturing Beats Expectations
U.S. Flash Purchasing Managers’ Index manufacturing indicator outperformed expectations, but services fell short. Even though economic growth may be retreating from high levels, strength likely will continue. Virus cases rose across the U.S., Europe and Asia, prompting investor concern that the Delta variant will weigh on economic progress. Some regions have re-imposed virus-related restrictions, but generally the restrictions are less damaging to the economy than before. Hospitalizations are broadly staying low as vaccines are proving effective against severe infection.
ECB Dovish Inflation Strategy Surprises Investors
The European Central Bank provided guidance on its new inflation strategy. Before the ECB considers raising rates, it requires that inflation reaches 2% year-over-year within its three-year forecast horizon, remains above 2% for the remainder of its forecast horizon and stabilizes at 2% thereafter. This was a somewhat dovish surprise and German government bond yields (proxies for eurozone interest rates) fell on the day of the announcement. The ECB remains committed to accommodative policy deep into the economic recovery.
U.S. Earnings Double So Far
Second quarter earnings continue to come in steadily ahead of expectations, after about a quarter of S&P 500 Index companies have reported. Aggregate S&P 500 earnings so far have doubled from last year with roughly 20% year-over-year revenue growth. Companies, with increased cash balances, are aggressively buying back their stock, helping underpin positive investor sentiment.
This Week Preview
Investors Look to Fed Comments on Tapering and Inflation
The Federal Reserve will announce policy decisions on Wednesday. Investors expect no major changes, but they will follow the central bank’s talk on tapering bond purchases, elevated inflation and ongoing virus-related economic risks.
Global Updates on Economic Growth
Key global regions will release second quarter gross domestic product. China’s will release Purchasing Manager Index numbers on Friday. They are expected to increase and remain above 50 (above 50 indicates economic expansion) as its economy navigates through a credit slowdown.
U.S. Tech Heavyweights To Report Earnings
Apple (AAPL), Microsoft (MSFT) and Alphabet (GOOG) will report on Tuesday, followed by Facebook (FB) on Wednesday and Amazon (AMZN) on Thursday. Better-than-expected results may help support recent growth stock leadership that has been aided by falling interest rates.
Possible Vote on $1 Trillion U.S. Infrastructure Bill This Week
The bill may be put to a Senate vote this week. If the Senate passes the bill, it’s unclear when the House of Representatives would vote on it.
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