Dow and S&P 500 notch record highs

Week from 9 to 15 August 2021

The S&P 500 climbed to a closing record of 4,468 (+0.71% week-over-week) after the Senate passed a $1 trillion bipartisan infrastructure bill on Tuesday, with 19 Republican senators voting in favor of this package. It is a major win for President Biden. The Dow Jones Industrial Average also closed the week at an all-time high of 35,515.38 (+0.87%, or 307 points), led by a jump in cyclical sectors. By contrast, the Nasdaq lost 12.86 points or -0.09%, weighed down by Amazon (-1.52%). Small cap stocks underperformed their large-cap counterparts (Russell 2000 down 1.10%).

Elsewhere, European stocks extended gains for a tenth consecutive session on Friday (MSCI EMU up 1.31% over the week). In Asia, Chinese stocks continued to recoup the severe losses suffered at the end of July, in the wake of Beijing's regulatory crackdown (Shanghai composite up 1.68%). The Nikkei 225 rose 0.56% in spite of declines among chip makers at the end of the week.

Cyclicals shine again

Among the S&P sectors, cyclicals were the best performers, bolstered by the $1 trillion infrastructure deal. Bulls cheered progress on this bill, pushing economically sensitive sectors higher (materials: +2.68%; financials: +1.88%; industrials: +1.36%). Utility stocks were also appealing (+1.47%, second best performer over the last two weeks, just behind financials).

On the flip side, energy finished the week in negative territory (-0.82%) after the International Energy Agency warned that demand growth for crude oil had slowed sharply.

Consumer discretionatiory struggled to remain above the flatline (+0.04%) as the University of Michigan Consumer Sentiment index tumbled to 70.2 in the preliminary August survey from 81.2 in July, due to a surge in Covid-19 cases. This is the weakest reading since December 2011.

Treasury yields pause 

Though US Treasury yields rose up to +1.36% (10-year) and +2.03% (30-year), they ended the week virtually unchanged (10-year at +1.29%, 30-year at +1.94%). The same was true of the Germany 10-year bond yield (-0.46%).

With the yield curves flatter on the week, investment grade corporate bonds showed no significant changes (-0.05% in Europe, +0.21% in the US). Ditto for high yield bonds (+0.03% in Europe, -0.16% in the US). Emerging debt edged up 0.16% in local currencies.

Gold rebounded (+0.95%, spot price at $1,779.75/Oz) while the greenback weakened against a basket of currencies (dollar index down 0.3% at 92.517).

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