Week in Review


Week in Review: July 23, 2021 

The Seesaw 


U.S. equity indexes staged a robust rebound after Monday’s sell-off of risk assets, seemingly putting aside concerns of a slowing pace of economic growth, increasing delta variant infections, and heightened inflation, at least for the time being. Throughout this week, economic data swayed back and forth with asset prices, reflecting the seesaw balance induced by the slowing “second-derivative” of growth narrative. Yields kicked off the week trending down but ended the week even higher, while the 2-year and 10-year Treasuries spread compressed below 100 basis points before paving its way well above that level. Credit spreads moved out and back in, and equities plummeted on Monday but quickly recovered. Investors now view the macroeconomic backdrop as a bit murkier than it was a few months ago. We recognize that escalating risks may cloud the path upward, but ultimately still expect stronger-than-average growth.

This week produced a mismatch of economic data. Housing starts picked up, reaching their highest gain in three months, but mortgage applications dipped. Existing home sales rose for the first time in four months but came in slightly below expectations. Meanwhile, builder sentiment and building permits fell below expectations, perhaps foreshadowing sluggish homebuilding in upcoming months. In some respects, hints toward the deceleration of housing momentum are a microcosm of the larger economy, as housing growth is generally considered a good leading indicator. Activity remains historically elevated and robust, but the magnitude of the pace is starting to wobble. Another reflection of more confounding data can be found in regional Federal Reserve (Fed) banks’ activity releases. This week the Chicago Fed National Activity Index came in well below expectations, while the Kansas City Fed Manufacturing Activity Index exceeded consensus. Markit U.S. Manufacturing PMI data beat expectations, while the Services component dropped below 60 from a previous-month reading of 63.7 (see Figure 1). Likewise, the unexpected rise of enrollment for unemployment benefits further illustrates volatility in the expansion. This is not to be unexpected, in our view, as the recovery from a viral pandemic was bound to include periods of choppiness. We believe the outlook has simply downshifted from “exceptional” to “very good.”

Fixed income markets continued to experience significant levels of volatility. U.S. 10-year Treasury yields grinded higher after its Monday dip, closing the week near 1.30%. Monday’s low involved yields reaching a level last seen in February. Treasuries and equities resumed their usual relationship this week with yields and stock prices increasing. This could suggest that investors are becoming slightly more upbeat about nominal growth prospects. On the policy front, expectations for President Joe Biden to reelect Fed Chair Jerome Powell could help inject a more stabilizing balance to the markets. Overseas, global central banks are following the Fed’s lead in this continued narrative, utilizing transitory language.

Leading into the week, the equity seesaw was on edge, balancing the rising anxieties of “peaking” with a heavy earnings season. On Monday, the seesaw tilted bearish as the S&P and Dow fell to lows last seen in May and October, reflecting investors’ decreased risk appetite among a macroeconomic backdrop of building uncertainty. Since Tuesday, the seesaw tilted increasingly upwards, as equities rebounded and rallied after Monday’s weak performance, reflecting the upside of stronger and longer than expected earnings growth. Nearly one quarter of S&P 500 companies have reported second quarter earnings. So far, results have been encouraging, with 87% of those whose reporting beating estimates. Analysts now project second quarter year-over-year growth to total 74% and for full-year 2021 S&P 500 earnings to total $195. These are significant upgrades to expectations. 

From an investment strategy standpoint, we recognize the many risks to economic growth. Nevertheless, we remain confident in our fundamental footing that strong consumers and reinvigorated business investments will power on, while impressive corporate profits will propel equities above current levels. As yields are forecasted to slowly grind higher in upcoming months, the cloudier macroeconomic backdrop leads us to expect periods of volatility. We favor stocks over bonds and recommend investing in cyclical and value-oriented segments that are more exposed to pockets of economic recovery and earnings growth.


Figure 1: Markit U.S. Purchasing Managers' Index (PMI)


Source: Bloomberg (as of July 23, 2021). 


Market Returns (USD) as of 7/23/2021





Global Equities

S&P 500

0.2% 1.7% 17.2% 35.4%

Dow Jones Industrial Average

-0.4% 1.0% 14.9% 31.5%


1.0% 1.3% 14.3% 38.2%

Russell 2000

0.4% -4.8% 11.9% 49.2%

First Republic Founders Index

2.1% -1.6% 13.1% 49.2%

Russell 1000 Equal Weighted

0.1% -1.8% 16.2% 41.4%

Fixed Income

ICE BofAML Municipals 1-10 Year A-AAA 

0.1% 0.5% 1.0% 2.1%

Bloomberg Barclays Intermediate Government/Credit

0.2% 0.6% -0.3% 0.3%

Bloomberg Barclays High Yield Bond

0.0% 0.2% 3.9% 11.6%

Market Levels


Week Ago

Year End

Year Ago

S&P 500

4367.48 4360.03 3756.07 3276.02

Dow Jones Industrial Average


34823.35 34987.02 30606.48 27005.84

10-Year U.S. Treasury Yield (Constant Maturity)

1.27% 1.31% 0.93% 0.60%

Gold ($/oz)

$1,806.92 $1,829.47 $1,898.36 $1,871.41

Crude Oil ($/barrel)

$71.91 $71.38 $48.19 $43.19

U.S. Dollar / Euro ($/)

1.18 1.18 1.22 1.16

U.S Dollar / British Pound ($/£)

1.38 1.38 1.37 1.27

Japanese Yen / U.S. Dollar (¥/$)

110.14 109.83 103.25 107.15