Information, Not Knowledge (or Wisdom)

Stocks pulled back for the week, but not before the S&P 500 Index reached a new record high of 4,480 on Monday afternoon, more than double its intraday low of 2,192 on March 23, 2020. Small-cap stocks lagged for the week, with the Russell 2000 Index briefly falling into correction territory, down more than 10% from its March 2021 peak. Energy shares continue to take their lumps, while gains in a wide range of healthcare stocks boosted most indices. Volumes reached the highest level in a month, reflecting a rebound in trading by retail investors.

Several factors seem to be weighing heavily on investor sentiment. More signs are emerging of an economic slowdown in China, and the Securities and Exchange Commission Chair, Gary Gensler, urged caution when investing in Chinese stocks because of regulatory uncertainty as well as disclosure issues. On the domestic front, recent signals from Federal Reserve policymakers that they may soon begin tapering the central bank’s monthly asset purchases also seemed to concern investors. That news, coupled with the extreme heat and COVID surging that continues to plague much of the country, has many worried.  Then came words from Dallas Federal Reserve President Robert Kaplan that created a Psalm 25:25 effect (“Like cold water to a weary soul, so is good news from a distant land”).  Kaplan sparked a mini rally when he suggested that he favors delaying tapering if the Delta variant takes a deeper toll on the economy.

Despite the great sentiment from Kaplan, worries that growth might be peaking continue to impact the markets. Stocks fell on Tuesday, after the Commerce Department reported that retail sales slumped 1.1% in July (although off an upwardly revised June base). Much of the decline was concentrated in auto sales, which fell 3.9%, with consumers balking at high prices and automakers struggling with the ongoing global semiconductor chip shortage and other supply issues. Home Depot shares fell sharply after missing sales expectations and consumers reined in spending on a number of “stay at home” categories, such as furniture and online purchases. Sales picked up solidly at restaurants and bars, however, suggesting that the latest wave of the pandemic—at least in its early stages—was not necessarily to blame for the pullback.

The rest of the week’s economic data were mixed, particularly in the housing sector. July housing starts fell 7%, much more than consensus expectations (bear in mind these expectations were based upon upwardly revised May and June numbers). Building permits—a more forward-looking gauge—rose more than anticipated. A measure of builder sentiment fell back to its lowest level in a year, hampered in part by labor and building supply worries. Conversely, industrial production rose 0.9% in July, more than expected, due in part to automakers moderating or canceling plans to shut down production lines. Weekly jobless claims fell to 348,000, a bigger drop than expected and another pandemic-era low.

T.S. Eliot once penned, “Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information?” With those words in mind, our wealth management committee convened, yesterday, to look past the mountains of information and, Lord willing, employ some strategic wisdom for the fall season. We anticipate making a few sector shifts and, depending how the next month plays out, we may concentrate some of our firepower into positions that we feel are best poised to provide a great return relative to risk by the end of the year. As always, please reach out with questions, and remember that it is still a good time to get your cash working.

Sources: Yahoo Finance, Reuters.com, and JP Morgan Market Insights

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