Midyear Outlook 2021

Midyear Outlook 2021

July 15, 2021

Midyear Outlook 2021

Daily Insights

US equities opened lower as traders continue to consider the transitory effects of inflation on the economy

  • The Nasdaq composite showed some early relative strength.
  • European equities are lower as the U.K. filled almost 1 million job vacancies in June, the most ever.
  • Asian markets finished their session mixed as China (Shanghai Composite) finished up 1% as June economic activity fell short of estimates.

Initial unemployment claims fall to pandemic low as labor market heals

Initial claims for unemployment fell to 360,000, an improvement from last week’s 386,000 but weaker than economists’ consensus estimate.

  • Initial claims remain above pre-pandemic levels, indicating that labor markets still have a way to go to fully recover.
  • Many businesses still report having difficulty finding qualified workers, which may make them more inclined to retain current employees.
  • Unemployment benefits, difficulty finding child care, and concern about new variants may all be contributing to a slowing labor market recovery.

Challenges and opportunities for Japan

  • Economic growth and momentum in Japan has lagged much of the developed world in 2021.
  • Slower vaccine distribution has hindered Japan’s recovery, but the pace has started to pick up and nearly 20% of its population is fully vaccinated (vs. roughly 50% in the US).
  • Although forward-looking manufacturing surveys have been soft, a 21% year-over-year increase in industrial production and 50% year-over-year increase in exports through May are notable.
  • While we do not see Japan as a reason to favor developed international currently, the opportunity is there for it to help at some point in the second half as the country’s economy more fully opens.
  • A weak yen could potentially provide a boost to the export-driven economy as well.

Technical update

  • Friday saw the strongest daily breadth reading in over a year, sparking hopes for a broad-based rally.
  • However, though the S&P 500 Index is slightly positive thus far this week, participation has reverted back to only a few names, with the NYSE Cumulative Advance-Decline line lower and continuing its recent streak of lower highs since early June.
  • Participation remains especially weak among small caps, which topped out more than 4 months ago and have lagged the S&P 500 by more than 15% since then.
  • The Russell 2000 has critical support near 2100, its low point since February and also near its 200-day moving average.

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