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S&P 500 & Consumer Sentiment

Daily Insights: Expert Opinion - Doo Prime News

Yet another record for the S&P 500.

US stock market closed higher on Friday, 13 August 2021, as it continued the trend from last week.

Meanwhile, US Treasury yields closed lower after a report showed consumer sentiment fell to the lowest level in nearly a decade. More on that later.

It was not the most exciting week for traders, aside from the scare that the Nasdaq had with rising US 10-year Treasury yields, it ended up being a boring week with lackluster trading.

CPI data on Wednesday, 11 August 2021, came in at 0.5%, down from 0.9% for June; while core inflation was 0.3%, down from 0.9%. The annual rates remained at 5.4% for headline and 4.3%, down from 4.5% for the core.

This was pretty much in line with expectations while the core was slightly lower than expected.

Contrasting the CPI data, the producer price index (PPI) has jumped higher than expectations. It went up by 1% from June and 7.8% from the previous year. Excluding food and energy, it rose 1% from June and 6.2% from the previous year.

Here are the closing levels on Friday:-

 Last               Change        %Change 
Dow Jones   35,515.38 +15.53 +0.04% 
S&P 500  4,468.00  +7.17 +0.16% 
Nasdaq Comp 14,822.9+6.64 +0.04% 
US 10Y 1.283   
VIX  15.45 0.14 -0.9% 

The consumer sentiment index fell by 11 points to 70.2, the lowest since December 2011, reported the University of Michigan on Friday, 13 August 2021.

The sentiment highlights rising prices and concerns of the Delta variant’s potential impact on the economy.

The expectation gauge fell almost 14 points to 65.2, the lowest since October 2013. Only 36% of respondents expect the jobless rate to fall, compared with 52% in the previous month.

The index of current conditions also fell to 77.9, the lowest since April 2020. Inflation expectations rose to 3% over the next 5-10 years, which is higher than the 2.8% recorded last month.

The Michigan report showed consumer buying conditions deteriorated to the lowest since April 2020. Despite that, the S&P 500 still managed to eke out a new high.

What does this tell us? That this weakness will hold the Fed back from tapering and continue to provide easy money? We saw a fall in the 10-year yields following the report.

Does it mean that the market will soon realize that this fall in sentiment may translate to a fall in future earnings and the economic growth?

With the CBOE Volatility Index (VIX) holding below 16, it may just be another boring week with little volatility, unless traders decide that it is time to turn to summer liquidity, or lack of to exacerbate these moves.

Finally, 2 words to consider – Delta variant.

Source: CBOE, Reuters, Bloomberg

This commentary was written by James Gomes
James has been in the finance industry for over 30 years and most recently worked for a large US bank for more than 20 years.

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