The Week in Review: August 16, 2021
Stocks, COVID Cases Jump
First, let’s qualify this week’s Insights by saying this is not a forecast for what might happen to stocks over the next few days or weeks. This week’s analysis helps shed light on what seems to be counterintuitive. While COVID-19 cases surged above 100,000 per day, the Dow Jones Industrials1 and the S&P 500 Index3 set a series of new highs last week (MarketWatch data).
Data source: Centers for Disease Control (CDC) 8/11/2021.
So it’s fair to ask, “Why haven’t stocks taken a hit? Why have investors sidestepped discouraging news?” We have seen some volatility over the last month, but so far, it has been temporary.
Unlike prior upticks that forced new restrictions, vaccines are widely available. Today, the market is viewing these vaccines as an inoculation against a rapid slowdown in the economy.
For now, the “collective wisdom of investors” (the daily buy and sell decisions of all large and small investors, which give us daily prices) is looking past the surge in coronavirus cases.
While the vaccines are not as effective in halting the Delta variant as we saw with previous mutations, the CDC says, “The vaccines still provide strong protection against serious illness and death.” It’s one reason we have yet to see more significant restrictions in most locales.
Still, some companies in industries that depend on person-to-person interactions have expressed concern.
Fed Chief Powell may have summed it up well at his July 28 press conference. He didn’t dismiss the possibility of some impact, but said, “What we’ve seen, though, is with successive waves of COVID over the past year and some months now, there has tended to be less in the way of economic implications from each wave.
“And we will see whether that is the case with the Delta variety. But it’s, you know, it’s a—it’s certainly a—not an unreasonable expectation.”
If you have any questions or concerns, please don’t hesitate to let me know.
Two for the Road
1. The S&P 500’s forward P/E touched a high of 23.6 on August 28, 2020. That day, the S&P closed at 3,508. Since then, the forward P/E has trended lower while during that same period the S&P 500 surged 25% to 4,395. —Axios Markets, August 5, 2021
2. Americans age 70 and above have a net worth of nearly $35 trillion. That amounts to 27% of all U.S. wealth and is equal to 157% of the U.S. gross domestic product. —The Wall Street Journal, July 2, 2021
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1. The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
2. The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.
3. The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
4. The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.
5. CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.
6. CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.