Blog Post

Stocks Decline as Reality of Fed’s Taper Plan Comes Into Focus

Despite a rally on Friday, major stock indices ended the week lower with developed international, emerging markets and the Russell 2000 having the biggest declines.  The reality of the Federal Reserve’s plan to reduce its accommodative stance became apparent this week.  The minutes from the last FED meeting showed a taper of bond purchases would likely begin before year end depending on more progress on hiring.  Officials indicated a desire to completely end bond purchases in less than the 10 months the previous taper took in 2014.

Treasury yields fell with the 30-year bond yield closing at 1.871% and the 10-Year note closing at 1.259%.  Crude oil fell to $62.25 a barrel and natural gas fell to $3.843 per MMBTUs.  The U.S. dollar index rose to 93.44 and gold rose to $1783.50 an ounce.

In the economic numbers this week:

  • China reported data showing slowing growth as new restrictions are put in place due to the spreading Delta variant of Covid:
    • Retail sales rose 8.5% in July from a year earlier missing the median estimate of 10.9%.
    • Industrial production rose 6.4% YOY versus the median estimate of 7.9%.
    • Fixed asset investment rose 10.3% YOY versus the median estimate of 11.3%.
    • Unemployment rose from 5.0% to 5.1%.
  • S&P Global reported that corporations are sitting on a record $6.84TN of cash and short-term investments due to uncertainty of further disruptions due to a resurgent Covid-19.
  • The Commerce Department reported
    • Retail sales fell 1.1% in July from June.  Still, retail sales remain far above the pre-pandemic trend line.  Excluding autos, which are in short supply, retail sales fell 0.4%.  While goods spending decreased in June, services spending has increased.
    • Housing starts fell 7% in the month of July due to supply and labor restraints.  However, starts are still above pre-pandemic levels.
    • Permits, a sign of future starts, increased  by 2.6% in July.
  • The Federal Reserve reported that industrial production rose 0.9% in July. 
    • Manufacturing rose 1.4% following a revised 0.3% drop in June.  Motor vehicle production rose 11.2% following a 5.9% decline in June as erratic chip supply continues to impact production.  Excluding autos and auto parts, manufacturing rose 0.7%.  Business equipment production rose 2.8% and construction supply production rose 0.9%.
    • Utility output decreased 2.1% in July.
    • Oil and gas drilling increased 6.1%.
  • The Labor Department reported: 
    • A seasonally adjusted 348,000 workers filed initial claims for unemployment in the week ending August 14th, down 29,000 from a revised 377,000 the week before.  
    • The 4-week moving average of claims, designed to smooth out volatility, fee to 377,750.
    • Continuing claims were nearly unchanged at 2.8MM in the week ending August 7th.
    • A broader measure of claims including extended benefits, pandemic assistance and other programs fell from 12.1MM to 11.7MM in the week ending July 31st.
    • For the full unemployment report go here: .
  • The EIA weekly oil report is here: .  Also, the EIA reported in the prior week:
    • Field production of crude oil rose from 11.3MMBPD to 11.4MMBPD.
    • Natural gas storage rose 46BN cubic feet and is below the 5 year average at this time of year.
  • Baker Hughes reported the number of active oil rigs rose 8 to 405.  The number of active natural gas rigs fell 5 to 97.

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Best Regards,

Loren C. Rex, CFP®, MA                                                            Erik A Smith AIF®

President                                                                                  Managing Partner

Generations Financial Planning & Wealth Management        269-441-4143

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Battle Creek, MI  49017

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