PAST WEEK'S NEWS (June 14 – June 20, 2021)
The price of Alfi, Inc. shares surged to lead the markets gainer, with most came on Tuesday following the company announcement of an agreement with All-Niter for the fulfilment, staging and shipment of 10,000 digital tablets to countrywide Uber and Lyft drivers. Urban One’s stock plummeted most for the week after the company registered three million shares of its Class A stock for sale.
Stocks Performance (U.S. Stocks)
Global equities declined as a surprisingly hawkish outcome from the Federal Reserve’s June 15–16 policy meeting and late-week comments from a Fed official about potentially earlier-than-expected rate hikes.
Cyclical companies that reliant on economic growth were dragged lower. On the other hand, large-cap equities held up better than small-caps. Growth stocks easily outperformed value stocks as investors sold companies in the energy and financials sectors amid fears that the Fed will remove its accommodative policies and raise rates sooner than markets had anticipated.
The unwind of the reflation narrative was also further pressured by a series of other developments, including commodities that continued to pull back (copper, gold, silver, palladium), retail sales for May were weaker than expected, weekly initial claims that were unexpectedly increased, and JPMorgan Chase and Citigroup that warned of lower trading revenue for the Q2.
From a sector perspective, advancing sectors were led by Retail Trade sector at 1.03%, followed by Technology Services at 0.49%, Electronic Technology (-0.51%), and Health Technology at -0.94%. Meanwhile, the weakest sectors were from the Non-Energy Minerals sector at -9.12%, followed by Process Industries at -5.54%, Industrial Services (-4.81%), and Producer Manufacturing sector (-4.68%).
The S&P 500 and Nasdaq Composite started the week at record highs, but the benchmark index ended the week down 2% as value/cyclical stocks sold off after the Fed's policy meeting. The Dow Jones Industrial Average succumbed worse, dropping more than 3%, the biggest weekly decline for that index in nearly eight months.
Shares in Europe also fell following the U.S. Federal Reserve interest rates announcement.
Chinese stocks recorded their third weekly loss, while Japan’s stock markets rose for the week after the government eases some coronavirus restrictions and the PM survives no-confidence vote.
Oil Sector Performance
Oil recorded its fourth consecutive weekly rise, buoyed by the falling inventories and a recovery in demand in the second half of 2021 that encouraged investors, although fell from multi-year highs on Friday, weighed by the stronger dollar, hike in UK COVID-19 cases, as well as concerns over demand and new Iranian supply.
The crude priced climbing to nearly $72 per barrel early in the week, the highest level since October 2018. As recently as May 20, oil was trading as low as $62.
Stocks Interrupted by Hawkish FOMC Outcome
After three consecutive weeks of posting small gains, the S&P 500 reversed course, falling nearly 2%. The Dow fared worse, dropping more than 3%—the biggest weekly decline for that index in nearly eight months. The NASDAQ fell less than 1%.
Value Index Slump
For the second week in a row, an index of value-oriented stocks trailed a growth-stock benchmark by a wide margin, with value tumbling 4.1% compared with a 0.5% gain for growth. The result chipped away at value’s year-to-date outperformance relative to growth.
Volatility Perks Up
A measure of investors’ expectations of short-term stock market volatility climbed on Friday to the highest level in nearly a month, as the Cboe Volatility Index closed at nearly 21, rising nearly 32% for the week Nevertheless, the index remained 25% below a recent peak on May 12.
FOMC Meeting Outcome
A revised outlook issued by the U.S. Federal Reserve on Wednesday rippled across the markets, weighing on stocks and many other assets. Policy makers signalled that they expect to raise interest rates by late 2023—sooner than the Fed had previously projected—and members also boosted their inflation forecast.
Gold futures tumbled 4.5% on Thursday to around $1,778 a troy ounce in the wake of the Fed’s policy announcement on Wednesday. The decline marked the precious metal’s biggest 1-day drop in over 10 months.
The U.S. dollar’s value rose 0.8% on Wednesday relative to a basket of major foreign currencies—the dollar’s biggest 1-day gain since March 2020—and it extended its rally on Thursday. The dollar’s gains came after Wednesday’s Fed announcement lifted yields of government bonds.
U.S. crude oil prices rose for the fourth week in a row, climbing to nearly $72 per barrel, the highest level since October 2018. As recently as May 20, oil was trading as low as $62.
U.S. retail sales fell 1.3% in May, more than most economists had expected. Analysts said recent retail data show that consumers may be spending less at department stores and more on restaurants, lodging, and travel as vaccination rates rise.
Other Important Macro Data and Events
Fed meeting outcome on Wednesday lifted yields of government bonds. The 10-year yield increased sharply after the Fed meeting on Wednesday before falling on Thursday and Friday, to end one basis point lower to 1.45%, respecting the Fed's view on transitory inflation factors. Meanwhile, the fed-funds-sensitive 2-yr yield jumped 11 basis points to 1.27%.
Against a basket of major currencies, the U.S. dollar index edged higher, rose 2.01% to stay at 92.321. EUR/USD slipped 2.04%, USD/JPY added 0.48%, and GBP/USD retreated 2.05%.
The FOMC made no changes to the fed funds rate or the pace of asset purchases, as expected, but the median forecast for the path of interest rates signalled two rate hikes by the end of 2023 (prior indication was leaving rates unchanged through 2023). Seven members expected a rate hike in 2022.
The Fed’s post-meeting statement and Chair Jerome Powell’s press conference were widely viewed as surprisingly hawkish. Policymakers acknowledged that progress on vaccinations has allowed the economic recovery from the pandemic to gain strength, and Powell acknowledged that Fed officials have begun to discuss slowing the central bank’s bond purchases, the first step toward eventually raising interest rates. Powell said that observers could characterize the meeting as “talking about talking about tapering.”
On Friday, stocks took another leg lower after St. Louis Fed President James Bullard said that he expects the Fed’s first rate hike in late 2022, before the early 2023 beginning of the tightening cycle that market participants expected.
Core eurozone government bond yields rose in line with U.S. Treasury yields after the Fed signalled plans to begin raising interest rates in 2023. However, dovish comments from the ECB helped to moderate this move. Peripheral government bond yields broadly tracked core markets. However, Greek five-year government bond yields turned negative for the first time, reflecting the ECB’s plan to continue its monthly bond-buying program.
UK gilt yields ended higher overall on increased expectations that the BoE would tighten policy after inflation exceeded the bank’s target and, on the Fed’s more hawkish stance.
UK Prime Minister Boris Johnson delayed a full reopening of society in England, which had been slated for June 21, for another month and said the vaccination campaign would be accelerated. The number of infections caused by the Delta variant has surged in the UK.
France ended the night-time curfew that was in place since October and began phasing out mask requirements in most public places, as did Denmark, amid signs that infection rates were falling.
What Can We Expect from the Market this Week
Fed stimulus has been a powerful fuel source for the bull market. Rising inflation is the exhaust produced by our speeding economy, and given the Fed's mandate to control inflation, shifts in central-bank policy will likely present speedbumps as we advance.
A recalibration in interest rate and central-bank-policy expectations could trigger some volatility, though increased vaccination rates, rising consumer demand, and surging corporate profits rightfully outweigh inflation concerns.
Important economic data being released this week including home sales, Q1 GPD, PMI, durable goods, and personal income and spending.