Capital 19 Catch-Up

A Booming Friday Session Saves Wall Street From Weekly Losses as Bond Yields Fall and the Delta Variant Crosses the Globe

An end of week rally saved the major indices from locking in weekly losses on Friday after a nervous week of trading following the July 4th long weekend. Traders spent the week concerned about falling bond yields, the potential slowdown of the economic recovery, and rising cases of the Delta variant domestically and abroad. However, all was forgotten in the final session of the week as the Dow, the S&P500 and the Nasdaq all closed at all-time highs.

The Nasdaq and S&P500 led the way as the move away from reopening names and back into growth stocks continued to boost the big tech companies. They both gained 0.4% for the shortened week. Apple (AAPL) and Amazon (AMZN) are both up more than 15% in the last month, while Microsoft (MSFT) is also up by double digits. The Dow just managed to stay positive for the week as the final session jump of 448.23 points (1.30%) saw it finish with a gain of 0.2% and a record close of 34,870.16.

The fall in Treasury bond yields continued to be the talk of Wall Street as the 10-year yield fell to 1.25% on Friday after hitting a high of 1.78% back in March. It has fallen from 1.58% since the start of July and the move has had traders on edge. A falling bond yield suggests that the market believes the pandemic recovery may be on its last legs. This was reflected in the lift in the unemployment rate to 5.9% from last Friday’s monthly jobs numbers, and reiterated in Tuesday’s ISM services index which showed it had slowed to 60.1 in June following a record move higher in May. Thursday’s weekly jobless numbers were also higher than expected, coming in at 373,000 when the economists were expecting 350,000.

The drop in yields to February lows has been bad news for the banks who will miss out on profits if it continues to slide. Bank of America (BAC) and Citigroup (C) were down by 5% by the Thursday session before a bounceback on Friday recovered about half of that. JP Morgan finished flat for the week. Contrastingly, it’s great news for growth stocks such as the big technology names as investment money searches for better returns on the market.

Amazon is up almost 8% in the last five sessions. It’s also benefitting from the move back into growth stocks, however, the share price jumped 4.8% on Tuesday when the Defense Department announced its decision to cancel its $10 billion JEDI cloud contract with Microsoft. The tender will now go out to a raft of cloud companies with Amazon in the box seat to win the new contract. New CEO Andy Jassy also officially took over on Monday, with Jeff Bezos now the executive chairman of the board.

It was also a great week for our stock report subject from last week General Motors (GM). We got a nice little dip in the mid-week sessions, perfect for a buying opportunity, and then a 4.82% bounce on Friday when advisory firm Wedbush rated the stock as an “outperform”. They predict the stock will trade more like a tech company going forward and could jump more than 50% in the coming year “as investors realize the extent of its tech and electric vehicle evolution.” They must have read our report which included those sentiments exactly. You can read our report here:

A heavy move down on Thursday seemed to have been caused by concerns over the spread of the coronavirus’s Delta variant around the US and the globe. The total number of covid deaths worldwide crossed the 4 million mark on Wednesday as the number of infections domestically from the new highly infectious strain rises. On the same day, Japan declared a state of emergency after its own outbreak and announced a ban on spectators at the upcoming Olympic games. CDC director Rochelle Walensky described the delta variants “rapid rise” as troubling, as it now accounts for more than 50% of all US cases.

47.6% of Americans are fully vaccinated but there are states throughout the South and Midwest that have concerningly low rates. The unvaccinated account for virtually all new Covid deaths and hospitalisations. This has stoked fears of another spike in infections leading into fall as much of the population finishes summer holidays and goes back to their schools and offices. However, because of the high vaccination rates across the country we’re unlikely to see nationwide shutdowns as we experienced in 2020. That’s great news for the economy.

In the week ahead we’ll find out exactly how well companies have been recovering as earnings season for the second quarter kicks off in earnest. Expectations are that earnings for the S&P500 will rise by a near-record 64% with reopening industries at the forefront of gains. The big financial stocks will again lead the way with JP Morgan and Goldman Sachs (GS) reporting on Tuesday, Bank of America, Citigroup, and Wells Fargo (WFC) on Wednesday, and Morgan Stanley (MS) and US Bancorp (USB) on Thursday. Other big names to report during the week include PepsiCo (PEP), Delta Airlines (DAL), United Health (UNH), and Alcoa (AA).

Datawise we’ll have CPI numbers on Tuesday and producer prices on Wednesday that will give us a good read on recent changes in inflation. I’m sure the Federal Reserve will be watching closely. We’ll also have the weekly jobless claims on Thursday and the retail sales figures for June out on Friday.

Have a great week.