Week in Review: Market Pulls Back from Record Territory

On Monday, the S&P 500 index reached a new record high of 4480, which is more than double its COVID intraday trough of 2192 on 23 March 2020. This created the fastest bull market rally since WW2. However, as the week progressed, stocks pulled back due to hawkish comments from the Fed, weaker than expected retail sales and worries that growth might be reaching its peak. A decline in China’s July factory output and retail sales growth also seemed to hamper investor sentiment.

The Fed, this week, released the minutes of their latest policy meeting. They concluded that they managed to attain their inflation goal however still required progress on their employment mandate. On the matter of tapering their monthly bond-buying, most participants “judged that it could be appropriate to start reducing the pace of asset purchases this year.” The members also importantly highlighted that there is no link between tapering bond purchases and increasing the interest rate target range.

In other U.S. economic related news, U.S. retail sales declined 1.1% in July, which disappointed investors and prompted questions over U.S. growth and possible threats such as the delta variant and non-existent government stimulus.

In China, July’s economic data showed that economic activity slowed more than expected. The slowdown in factory output and retail sales growth shined light on the disruption that new COVID-19 outbreaks were causing across the country. Beijing’s regulatory clampdown continued to create uncertainty in the Chinese market as new data protection laws were passed during the week.

As coronavirus restrictions eased across Europe, economic activity rose, translating to the eurozone economy growing 2% in the second quarter. Separately, Eurostat said that employment grew in the April to June period by 0.5%, in line with economic forecasts.

In Covid-19 related news, the delta variant continues to wreak havoc across the globe. President Joe Biden’s administration is ready to offer booster shots as soon as next month, as some areas of the U.S. are seeing death rates comparable to November’s peak. New Zealand is back in lockdown after a single virus case emerged. Hong Kong clamped down on travel, requiring visitors to now spend 21 days in quarantine on arrival. While Japan is set to extend its state of emergency in parts of the country until Sept. 12.

U.S. stocks rebounded slightly on Friday, but still closed the week in the red with all three major stock indexes finishing lower. The Dow fell 1.1% for the week, while the S&P 500 dipped 0.59% and the Nasdaq Composite edged 0.7% lower. Global indexes followed the same pattern with the Euro Stoxx 50 (-1.94%), FTSE 100 (-1.81%), Nikkei 225 (-3.45%) and Shanghai Composite Index (-2.54%) all ending the week lower. Brent crude tumbled 7.5% while Gold (0.09%) just managed a slight gain.


Market Moves of the Week

In South Africa, finance minister Enoch Godongwana again moved to reassure international investors this week, saying that he is committed to the policy trajectory set out by his predecessor Tito Mboweni, and sees “no changes” in SA’s fiscal framework. Looking at economic data, South Africa’s headline and core inflation fell by more than expected in July. The July headline inflation print was 4.6%, down from 4.9% in June while core inflation fell from 3.2% to 3.0%. These figures surprised consensus to the downside and highlighted the possible lack of demand-side pressure in the country. Fuel inflation slowed to 15.2% y/y from 27.5% previously, but still increased 1.7% m/m while electricity prices rose 13.6% m/m.

A state run national security fund was proposed by government this week. The proposal seeks to introduce a mandatory pension and insurance system that will see employers and employees paying up to 12% of their earnings into a state-run national social security fund (NSSF). The fund will provide benefits, in the form of income protection, for all workers and their families. “However, those earning above the tax threshold will need to contribute to supplementary retirement savings and insurance arrangements to ensure an adequate replacement income.”

The JSE all-share index was down 4.86% this week, following a global sell-off seen in commodity-orientated countries. As a result, the Rand weakened to end R15.20 to the U.S. Dollar, depreciating by over 3% for the week.

Screenshot 2021-08-21 at 18.16.16

Chart of the Week

It took the S&P 500 Index just 354 trading days to double from its low back in March 2020. That makes it, by far, the fastest doubling in history. The previous record, set after the low in March 2009, the height of the financial crisis, was 540 days.

Chart - 22 Aug

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