Overview: Global stocks rebounded last week, with the S&P 500 index ending the week 1.5% higher, driven by strong corporate profits and supported by vaccination approvals. Positive economic growth data across the globe led to strong international stock returns as well, with emerging markets (MSCI EM) up 4.3%, and international developed stocks (MSCI EAFE) up 1.9% for the week. Bond markets are focused on direction from the Federal Reserve coming out of the Jackson Hole Economic Symposium, where comments from Fed officials suggested that the tapering of asset purchases may begin in the fourth quarter of this year. Importantly, Fed Chair Jerome Powell emphasized several times in his remarks that inflation is expected to be temporary, and that any policy changes will be communicated well ahead of implementation. The comments were received positively by the markets, and yields finished the week steady, with the 2-Year and 10-Year U.S. Treasury yields at 0.22% and 1.31%, respectively.
Economic Growth Outlook: (from JP Morgan) Investors have become increasingly concerned about the outlook for economic growth; the flash August PMIs gave the first glimpse of economic activity at the end of the summer, and despite some modest deceleration, continue to signal the pace of economic activity remains solid. At the same time, although durable goods orders missed estimates, they still increased ex-transportation, and importantly, unfilled orders continue to move higher. One highlight of both the PMI and durable goods data is that supply backlogs are ongoing, as the ratios of new orders-to-inventories and unfilled durable goods orders-to-shipments both remain above their long-term averages of 1.2x and 6.1x, respectively. This suggests that an inventory rebuild could act as a tailwind for growth over the coming quarters. Turning to the demand side of the equation, consumer balance sheets remain solid, as personal income rose 1.1% in the month of July and the savings rate remained elevated at 9.6%; this dynamic should support a continued rotation in consumption away from goods and toward services. Although prolonged supply chain constraints along with strong demand may lead inflation to be stickier than expected, a less concentrated recovery should support above-trend economic growth over the next 12 months. For investors, an extended period of above-trend growth should provide support for value relative to growth, particularly given that long-term rates have yet to move higher from extraordinarily low levels.
Weekly Returns and Data
Sources: JP Morgan Asset Management, Goldman Sachs Asset Management, Barron’s
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