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Weekly Updates

Delta Variant Concerns Leads Consumer Discreationary and Communications Sectors to Pull Back

Weekly Update – July 30, 2021

  • The S&P 500 index fell 0.4% last week, weighed down by the consumer discretionary and communication services sectors, but the market benchmark still locked in a 2.3% gain for the month of July.
  • The index ended Friday’s session at 4,395.26, down from last Friday’s closing level of 4,411.79, which was a record closing high at the time. It set another new closing high Monday at 4,422.30 and reached an intraday record high of 4,429.97 Thursday, but failed to revisit those levels by the end of the week.
  • The weekly move was slight as investors struggled to reconcile quarterly earnings reports that have been coming in largely better than expected against concerns that the economic recovery may be slowing, especially amid impacts from the Delta variant of COVID-19.
  • With COVID-19 cases on the rise again in much of the US, the Centers for Disease Control & Prevention recommended a resumption of indoor masking last week, even for people fully vaccinated against COVID-19, in areas with high or substantial transmission.
  • Adding to the mixed market sentiment, data released Thursday showed Q2 gross domestic product rose 6.5%, an improvement from a 6.3% rate in Q1, but below expectations. The consensus estimate according to Econoday was for 8% growth. Still, the data showed consumer spending hasn’t slowed as personal consumption expenditures grew 11.8% in Q2, up slightly from an 11.4% expansion in Q1.
  • The GDP data came a day after the Federal Reserve sounded a cautious note on the US economy as it maintained its highly accommodative interest-rate policy and kept quantitative easing measures in place.
  • The consumer discretionary sector had the largest percentage drop of the week, down 2.6%, followed by a 1% drop in communication services and a 0.7% slip in technology. The materials sector led to the upside with a 2.8% climb, followed by a 1.6% increase in energy and a 0.7% rise in financials.
  • The consumer discretionary sector was weighed down by a 9% tumble in (AMZN) shares as the online retailer’s Q2 sales missed analysts’ mean estimate, as did its guidance for Q3 sales. The report sparked concerns that COVID-19 engendered gains were cooling off sharply. Amazon also said Friday it was fined 746 million euros ($884.8 million) by the Luxembourg National Commission for Data Protection over claims it violated the European Union’s General Data Protection Regulation rules by processing personal data.
  • In the communication services sector, shares of Activision Blizzard (ATVI) fell 8.6% as the videogame company grappled with the fallout of a recent sexual discrimination lawsuit. Activision initially called the allegations inaccurate and distorted, which led to employees planning a walkout. Chief Executive Bobby Kotick responded last week with a letter to employees that called the company’s initial responses “tone deaf.”
  • The technology sector’s decliners included Citrix Systems (CTXS), whose shares shed 12% on the week. The digital workspace technology company reported Q2 adjusted earnings per share slightly above the Street consensus estimate, but revenue missed expectations and the company cut its earnings and revenue guidance for the full year.
  • In the materials sector, shares of Freeport-McMoRan (FCX) rose 8.3% last week as the mining company reported Q2 adjusted earnings up from the year-earlier period.
  • The energy sector’s advance came as crude oil futures rose on the week amid Energy Information Administration data showing crude oil inventories fell by 4.1 million barrels last week to their lowest level since January 2020. The report was taken as sign that demand is continuing to improve.
  • Gainers in the energy sector included Valero Energy (VLO), whose shares climbed 5.1% on the week as the oil refiner reported it swung to a bigger-than-expected adjusted profit per share for Q2. The company’s Q2 revenue nearly tripled from the year-earlier period and topped the Street view.
  • Next week, the Q2 financial reporting season is set to continue with reports coming from companies including Mosaic (MOS), Simon Property Group (SPG), ConocoPhillips (COP), DuPont (DD), General Motors (GM), Kraft Heinz (KHC) and Goodyear Tire & Rubber (GT).
  • On the economic front, all eyes will be on the July employment data due next week, with ADP set to release private sector data on Wednesday ahead of weekly jobless claims on Thursday and the Labor Department’s Friday reports on monthly nonfarm payrolls and the unemployment rate.
  • Ahead of the employment data, July manufacturing readings are due Monday from Markit as well as the Institute for Supply Management, which will both be releasing readings on the services sector on Wednesday. Investors will also be watching for July motor vehicle sales on Tuesday.
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