Global equities edged downwards last week, as the S&P 500 saw its first five day…
World equites rebounded from a sharp sell-off on Monday to finish the week higher with some benchmarks touching all time highs. Following a near 4% sell-off in the major benchmarks to start the week, investors were on red-alert for a continued correction, however by Tuesday all negative sentiment turned positive mirroring what has been a familiar theme this year. Another interesting observation with the recent rebound was growth stocks outperforming value for the 5th consecutive week and now ahead year to date.
The benchmark S&P 500 finished the week +1.96% to stand at 17.45% for the year. The technology heavy Nasdaq composite rebounded strongly with a gain of 2.84% bring it to 15.12% year to date. The more cyclically sensitive Dow Jones industrial average recording a 1.1% gain and now 14.56% for the year.
Market pull-backs have been noticeably infrequent and short lived this year as strong economic growth, positive investor sentiment mixed with a heavy dose of central bank stimulus have produced consistent gains with limited downsides. While last Mondays selling does not qualify as a pull-back, it does serve as a reminder of what volatility can feel like. Investors should be aware that rising uncertainties around the pandemic/delta variant, a high bar for growth expectations and lofty valuations coupled with expectations for changing central bank policies could easily provide the catalysts for a considerable pullback at some stage this year. However, as always, do not endeavour to time it, simply accept it as normal if/when it happens!
As previously mentioned, the sell-off Monday can be attributed to the spread of delta variant across the US, rising cases and hospitalisations was most prevalent in states with low vaccination rates, impacting stocks related to the re-opening of the economy like Airlines, leisure and hospitality. Earnings season continued last week and exceptionally strong corporate earnings were attributed to the rebound on Tuesday. Companies like Verizon, Johnson & Johnson, Coca-Cola and United Airlines providing a general boost to sentiment. Communication services stocks got a shot in the arm with earnings beats from SNAP and Twitter later in the week. It wasn’t all good news however, as weekly jobless claims hit their highest level in two months, evidence that there is still work to do in the labour market.
Equity benchmarks in Europe performed similarly well, encouraged by corporate earnings in the US and the ECB’s affirmation of their accommodative monetary policy. The benchmark Eurostoxx 600 gained 1.49% for the week to stand at 15.66% for the year. The positive rebound in European equities came against a backdrop of rapidly rising COVID-19 cases. New cases rose by 40% in the UK and similar figures were seen across popular holiday destinations Spain, France and Portugal. Despite the rise in new cases, economies are, for the moment, proceeding with the last leg of re-opening their economies, including here in Ireland where indoor dining can resume again from today for those lucky enough to have a vaccine cert!
In local business news, the sale of Davy stockbrokers to Bank of Ireland naturally grabbed a lot of column inches this week for a couple of reasons. The first, naturally, is the major benefactors of the deal were also the protagonists in the infamous and fraudulent deal that proved catalyst for the sale in the first place. The second is the fact that the government will sell its remaining stake in Bank of Ireland, paving the way for the return of variable pay or so called “banker bonuses”. It will be interesting to see what happens with Davy/Bank of Ireland over the next few years