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Delta Variant, Inflation Weigh on Stocks

Delta Variant, Inflation Weigh on Stocks

July 20, 2021
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Equities Decline from Record Levels
After finishing the prior week at all-time highs, all three major U.S. equity indices finished this past week lower. Concerns around the Delta variant resurfaced as mask mandates in parts of the country are beginning to be implemented once again. Inflation was also a concern as economic data released last week confirmed these concerns. Companies have started to release second quarter earnings, so attention may shift to these releases this week.

For the Week…
The S&P 500 fell 0.96% last week, the Dow Industrials dropped 0.52% and the tech-heavy Nasdaq Composite shed 1.87%. Mid cap stocks retreated 2.81% for the week, while the small cap-focused Russell 2000 fell 5.11%.

Producer Prices Surge in June
The producer price index (PPI) rose 1% last month (+0.6% expected) and a record 7.3% year-over-year (+6.7% expected). The PPI has risen by 0.6% or more for six straight months. The core PPI (excludes food & energy) also rose 1% (a record high) and is up 5.6% from a year ago. Last week’s higher-than-expected CPI inflation report is reflective of firms passing these rising input costs to customers.

Top Weekly Gainer: Utilities
Eight of the 11 major S&P 500 sector groups posted losses last week, led to the downside by Energy (-7.69%), Consumer Discretionary (-2.63%) and materials (-2.34%). Utilities (+2.56%) rose the most, while Consumer Staples (+1.25%) and Real Estate (+0.67%) also gained.

Treasury Yields Flatten
Benchmark 10-year yields extended its streak into a fourth week falling another 0.06% to finish the week at 1.31%. Shorter maturity Treasury yields rose as the 2-year treasury yield bumped up slightly to 0.25%. Bond investors are preparing for more inflation in the near term but seem to think it will be short-lived and are adjusting growth expectations downward further in the future. The U.S. Dollar Index strengthened by 0.60% last week. U.S. WTI crude oil futures ended 3.64% lower last week, finishing at $71.81/barrel.

The consumer price index (CPI) rose 0.9% in June and 5.4% year-over-year (YoY). It was the largest annual gain since 2008. Core CPI (excluding food and energy) also increased 0.9% last month but expanded at its highest rate YoY since 1991 (4.5%). While short-term economic reopening and supply-chain disruptions will likely subside in the upcoming months, inflation could settle to a rate that was higher than pre-pandemic norms because of rising housing and rental costs.


This report is created by Cetera Investment Management LLC. For more insights and information from the team, follow @CeteraIM on Twitter.

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Glossary

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.

The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry grouping (among other factors) designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.

The NASDAQ Composite Index includes all domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite Index is a broad based index.

The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe and is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.

The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.

The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe and is a subset of the Russell 1000 Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership.

The Bloomberg Barclays US Aggregate Bond Index, which was originally called the Lehman Aggregate Bond Index, is a broad based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government–related and corporate debt securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency) debt securities that are rated at least Baa3 by Moody’s and BBB- by S&P. Taxable municipals, including Build America bonds and a small amount of foreign bonds traded in U.S. markets are also included. Eligible bonds must have at least one year until final maturity, but in practice the index holdings have a fluctuating average life of around 8.25 years.

The Bloomberg Barclays US Corporate High Yield Index measures the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch, and S&P is Ba1/BB+/BB+ or below, excluding emerging market debt. Payment-in-kind and bonds with predetermined step-up coupon provisions are also included. Eligible securities must have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 6.3 years.

The Bloomberg Barclays US Municipal Bond Index covers the USD-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and prerefunded bonds. Eligible securities must be rated investment grade (Baa3/BBB- or higher) by Moody’s and S&P and have at least one year until final maturity.

The MSCI EAFE Index is designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada. The Index is market-capitalization weighted.

The MSCI Emerging Markets Index is designed to measure equity market performance in global emerging markets. It is a float-adjusted market capitalization index.

The Bloomberg Commodity Index is a broadly diversified index that measures 22 exchange-traded futures on physical commodities in five groups (energy, agriculture, industrial metals, precious metals, and livestock), which are weighted to account for economic significance and market liquidity. No single commodity can comprise less than 2% or more than 15% of the index; and no group can represent more than 33% of the index.

The S&P GSCI Crude Oil Index is a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark for investment performance in the crude oil market.

The S&P GSCI Gold Index, a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark tracking the COMEX gold futures market.

The U.S. Dollar Index is a weighted geometric mean that provides a value measure of the United States dollar relative to a basket of major foreign currencies. The index, often carrying a USDX or DXY moniker, started in March 1973, beginning with a value of the U.S. Dollar Index at 100.000.