Weekly Snapshot August 6th, 2021
Strong earnings and jobs sent the U.S. equity markets higher across the board with the Dow Jones Industrial Average (DJIA) and the S&P500 Index (S&P500) setting record highs. The DJIA returned 0.79% for the week. The S&P500 advanced 0.96%, the Russell 2000 Index (R2000) increased +0.76% and the NASDAQ Composite (NASDAQ) jumped 1.14%1. S&P 500 sector outperformers for the week were Financials 3.56%, Utilities 2.28%, and Technology 0.93% while sector underperformers were Consumer Staples -0.55%, Materials 0.16%, and Industrials 0.17%2. On a style basis, growth slightly outperformed for the week (0.96% vs 0.87%) but trails year-to- date (17.83% vs 19.01%)3. Companies with notable 52-week Highs were Chipotle Mexican Grill (CMG), Dick’s Sporting Goods (DKS), Nike (NKE), and Waste Management (WM).
The stronger-than-expected labor report was the highlight of the week. June’s payroll of 943,000 was well above consensus estimates of 870,000 and the largest gain in over 10 months. In addition, April and May payrolls were revised higher by over 119,000 jobs. This improvement in the workforce caused a sizable drop in the unemployment rate to 5.4%4.
Beside employment, 2nd Quarter reported earnings have been extraordinarily strong. Over 87% of the S&P500 companies that have reported results have exceeded analysts’ earnings and revenue estimates – the highest rate since the data has been tracked in 2008. In aggregate, quarterly reports have been 4.9% higher than expectations which is above the five-year average of 1.2% and set to become a record high5.
After falling below 1.20% (the lowest yield in over six months) the 10-year U.S. Treasury came under pressure from strong economic data led by the payroll numbers and unemployment rate – ending the week around 1.29%. In Washington D.C., a Bipartisan infrastructure breakthrough appeared, leading to the likely Congressional passage of a $1.1 trillion dollar spending package.
The Delta Coronavirus variant still dominates headlines with U.S. infections hitting a six-month high of 100,000. However, given strong job growth, rising corporate profits, accommodative monetary policy, and substantial fiscal stimulus most concerns about the Delta variant’s impact have been alleviated – the pace may be slowed but the economic expansion will not be derail6. But some caution is merited since late Summer/Fall historically contains the worst performance months of the year.
What we will be watching this week:
Various economic reports on the health and direction of the economy:
- Consumer Price Index – S. Bureau of Labor Statistics
- Producer Price Index – S. Bureau of Labor Statistics
- University of Michigan Index of Consumer Sentiment
- Weekly Unemployment Claims – U.S. Department of Labor
Stocks in the News:
- Parker-Hannifin Corporation (PH) shares traded lower despite quarterly revenue and earnings above expectations (revenue of $3.96B beat by 0.8% and EPS of $4.38 beat by $0.06.). Management noted all time quarterly records across sales, net income, EPS, and segment margins. However, initial FY22 guidance from management was a bit underwhelming – below consensus expectations for growth, revenues, and earnings7.
- General Motors Company (GM) reported EPS of $1.97 vs consensus $1.82 with revenues at $34.20B vs
$29.92B. GM highlighted strong pricing that was somewhat offset by increased warranty and material costs. Used vehicle sales drove record results at GM Financial. Shares closed lower as GM disappointed investors with Q2 EBIT missing, but in addition to the Q2 miss, what predominantly sent shares lower was the softer than expected 2H outlook due to potential conservative on volume/pricing projections and transitory semi-chip shortages8.
- Kraft Heinz Company (KHC) reported revenue of $6.62B (beating consensus by 0%), EBITDA of
$1.71B (beating by 1.5%) and EPS of $0.78 (beating by $0.06). KHC is starting to pursue the transition from debt reduction to growth via capex with a more aggressive portfolio management. This has allowed the company to redistribute resources towards higher growth initiatives. However, uncertainties surrounding guidance, volume growth, and margins sent shares lower as organic growth of (2.1%) came in (80bps) below consensus on challenged volume and mix9.
Fundamentum Investment Committee:
John Nichol, CFA® – Chief Investment Officer Trevor Forbes – Investment Committee
Robert Armagno – Investment Committee
1 JPMorgan Weekly Market Recap – 8/9/2021 2 FactSet – 8/6/2021
3 JPMorgan Weekly Market Recap – 8/9/2021 4 FactSet – 8/6/2021
5 FactSet – 8/6/2021
6 Edward Jones Weekly Market Wrap – 8/6/2021 7 FactSet – 8/5/2021
8 FactSet – 8/4/2021
9 FactSet – 8/4/2021