Overview: Stock markets dropped last week as fears of slowing global economic growth and the ongoing Delta variant dragged down market returns. In the U.S., the S&P 500 index fell 1.7%. COVID-19 worries, along with the increased likelihood that bond asset tapering may begin this year contributed to negative stock returns across the globe, with international developed stocks (MSCI EAFE) down 0.3%, and emerging market stocks (MSCI EM) returning 0.4%. One bright spot was China, where reports of constructive talks between Presidents Biden and Xi Jinping of China were viewed positively, with the benchmark Hang Seng Composite index in China rising 1.3% on the week. In the bond markets, yields rose modestly, as investors watch data on inflation and look for policy direction from the Federal Reserve. The 2-Year and 10-Year Treasury yields finished the week at 0.22% and 1.34%, respectively. Key data on consumer prices (CPI) will be released Tuesday this week, with the consensus for headline inflation 5.3% annualized, and core inflation (ex-food and energy) expected to be 4.2% year-over-year.
A Note on Unemployment: (from JP Morgan) In June, pandemic-related unemployment benefits expired in half of the states. As of last week, they have now expired across all 50. Many assumed that once these enhanced benefits expired, the unemployed would quickly re-enter the job market. However, regional data from July’s JOLTS report does not support that view. States that ended enhanced benefits earlier did not see a significantly higher rate of new hiring. This may be because unemployed workers accumulated some savings during the pandemic.
At the national level, the July JOLTS report did record its sixth straight all-time record, showing 10.9M job openings. This print further underscores the national labor supply problem, which has contributed to the recent surge in wages for private production and non-supervisory workers. In August, annualized wage growth rose by a very strong 4.9% y/2y (the y/2y is a more useful measure to mitigate pandemic distortions). This marks its strongest print since 1983. Wage growth has been rising as the difference between the number of jobs available and the number of unemployed Americans widens. Heading into the fourth quarter, the striking number of excess job openings suggests that hiring could accelerate going forward, with continued strong wage growth likely in the short run, even as unemployment benefits return to more normal levels.
Sources: JP Morgan Asset Management, Goldman Sachs Asset Management, Barron’s
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