The S&P 500 (+2.0%), Dow Jones Industrial Average (+1.1%), and Nasdaq Composite (+2.8%) ended the week at record highs, as investors embraced a buy-the-dip mindset and piled into the largest stocks in the market after a rough start to the week. Each of the major indices, including the Russell 2000 (+2.2%), rose between 1-3%.
On Monday, the S&P 500 dipped below its 50-day moving average (4257) and the Russell 2000 entered correction territory, which is often defined as a 10% decline from a recent high, reportedly because the market was concerned about the Delta variant slowing down economic growth.
Each of the major indices fell between 1-2% that day, but the silver lining was that the S&P 500 successfully retested its 50-day moving average. The benchmark index subsequently closed higher every day after Monday, largely due to the following factors:
- A belief that successfully retesting the 50-day moving average was bullish, as it has been since April 2020.
- Easing Delta variant concerns after the CEOs of Coca-Cola (KO), Chipotle Mexican Grill (CMG), and United Airlines (UAL) said their businesses haven’t been impacted by the dominant variant.
- Expectations that the mega-caps will provide strong earnings reports next week after a heavy slate of good earnings news this week. The Vanguard Mega Cap ETF rose 3.1% this week.
- Price momentum and a fear of missing out on further gains.
Nine of the 11 S&P 500 sectors closed higher, led by the communication services (+3.2%), consumer discretionary (+2.9%), information technology (+2.2%), and health care (+2.2%) sectors with gains over 2.0%. The energy (-0.4%) and utilities (-0.9%) sectors closed lower.
Signs of peak growth still lingered, though, which likely restrained the rebound gains in many of the value/cyclical stocks. These signs were manifested in the latest economic data:
- Building permits, which are a leading indicator, declined 5.1% m/m to a seasonally adjusted annual rate of 1.598 million (Briefing.com consensus 1.700 million).
- Weekly initial claims reached their highest level since mid-May at 419,000.
- The Conference Board’s Leading Economic Index increased at its slowest pace since February at 0.7%.
- The preliminary IHS Markit Services PMI decreased to 59.8 in July from 64.6 in June.
The 10-yr yield decreased one basis point to 1.29%, although it dipped below 1.14% early in the week.
Week in perspective provided by Briefing.com