Markets Dip as GDP Forecasts Get Downgraded
- Stocks were down across the board last week, with domestic stocks down each of the four trading days during the holiday-shortened week. We saw global markets (represented by the MSCI All Country World Index) down -1.2% and domestic stocks (represented by the S&P 500 Index) down -1.7%. U.S. small companies (represented by the Russell 2000 Index) fell the most, down -2.8%.
- With the delta variant in full effect and central banks slowing down their accommodative policy, there has been some downgrades to expected GDP growth in the U.S. for 2021. While the expectation is still for sizable growth around 6%, some analysts are predicting that some of the growth that was projected for 2021 will spill over into 2022.
- At the sector level, there has been a rotation from cyclical, value-oriented sectors to more traditional growth sectors. On a year-to-date basis, energy, financials, and real estate are still leading the pack within the U.S. With that said, sectors like communication services (Google and Facebook) and technology have caught up and only slightly trail this year.
- The European Central Bank made a policy change last week that was expected. They slowed their bond purchase program and increased the inflation forecast. This is a similar path that we expect the Fed to take later this year, with the slowing of their asset purchase program as the economy continues its recovery.
- In the report of new filings for federal unemployment benefits, we saw the lowest claims level since the pandemic started. The report last week showed 310,000 new claims in their weekly report.
- An area to keep any eye on over the next month or two will be Congress. As the Biden administration works to pass the $3.5 trillion spending program, there is still a disconnect with progressives and moderates of the party. The key will be where Senator Joe Manchin lands, as he’ll be a crucial vote and has openly backed a more modest proposal that would spend closer to $1-2 trillion. Lastly, decisions will need to be made on the federal debt ceiling as Treasury Secretary Janet Yellen says all efforts to avoid breaking the ceiling have been exhausted.
- I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.
