SHAKY MARKETS IN JULY NOT NECESSARILY A CAUSE FOR CONCERN

July 21, 2021

Bond yields were falling on Monday’s equity selloff, with the selloff helping to push a flight to the relative safety of bonds. The 10-Year Treasury yield fell below its 200-day moving average to the lowest level since February, and that is hurting financial stocks. The Financial Sector SPDR (XLF) is threatening its June low. Furthermore, the Energy SPDR (XLE) fell to a 3-month low after a big drop in the price of oil, making energy shares the day's weakest sector. 

CBOE

Sufficient panic shown in VIX term structure is associated with market bottoms. July is historically very choppy, and despite the HCM-BuyLine® being positive, being patient for a few days or a week or two during this time of chop could be wise. 

VIX

The global story of COVID-19 is the Delta variant. Over the past 8 weeks, the story of COVID-19 has become almost singularly about the Delta variant.  We feel this is more media driven news than a real cause of great concern.

Retail sales rebounded 0.6% in June, contrary to the consensus of -0.4%. It was the third increase in the past four months and followed a downwardly revised -1.7% in May. The surprise increase last month was due in large part to higher consumer prices, as retail sales are reported in nominal terms. Discounting by the CPI for consumer commodities, which was up 1.7% in June, suggests that real retail sales actually declined by about 1.0% for the month.

Nevertheless, the surprise increase in retail sales suggests that companies’ revenues are growing. Most major categories posted solid gains, led by miscellaneous stores (+3.4%) and electronics and appliance sales (+3.3%). Other notables included: apparel (+2.6%), gas station sales (+2.5%), and food services (+2.3%). Those were partly offset by declines in vehicles (-2.0%), furniture (-3.6%), building materials (-1.6%), and sporting goods (-1.7%). Excluding vehicles, retail sales increased 1.3%, above the consensus of 0.5%.  


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