Large Cap Stocks Add to their Records; Bond Yields Fall Again

Week from 5 to 11 July 2021

After a long weekend of festivities for traders, the S&P 500 went on a roller-coaster ride all week long but eventually rose +0.40% to a closing record high of 4,369.55. The NASDAQ also climbed to its umpteenth record close in 2021 (14,701.92, +0.43%), as tech racked up gains in the wake of the Fed’s minutes (mid-June FOMC meeting). They were not as hawkish as expected. Investors now suspect economic growth and inflation are topping out. Bond yields dipped accordingly, for a third straight week. The yield on the benchmark 10-year T-note lost 7 basis points, touching its lowest level since February (+1.36%). Same trend in Europe where the 10-year German bond yield slipped 5 basis points to -0.29% from -0.24% while the French OAT yield moved lower to +0.056% from +0.096%.

Growing Weakness in Small Cap Stocks 

Small cap stocks continued to underperform their large-cap counterparts. The Russell 2000 was down 1.12% week-over-week. Its relative performance against the S&P 500 thus took another step lower (return differential of -1.52% over the week, after -2.90% a week earlier).

Among the S&P sectors, energy fell further into the red zone (-3.41%). Oil prices indeed reversed gains (WTI crude down -0.8% after six positive weeks in a row) following the failure of OPEC+ to agree on a new output plan. Despite a rebound on Friday, financials slipped again (-0.63%), before most of them report their Q2 results. Communication services slid too (-0.43%), with Facebook below the flatline (-1.21%). Former President Donald Trump has filed a class-action lawsuit against the social media giant. By contrast, real estate shined again (+2.64%), followed by consumer discretionary (+1.45%, as Amazon jumped +5.93%), utilities (+0.94%) and information technology (+0.88%).

European stock markets edged lower (MSCI EMU down 0.23%). In Asia, the major indices finished in negative territory. Japan's Nikkei shed more than 2.9% while the Hang Seng nose dived by 3.4%. Data showed China’s services sector grew in June at its slowest pace in 14 months.

Bond Rally 

As U.S. Treasury yields continued on their downward trajectory, they pushed investment grade corporate bond prices higher (+0.23% in Europe, +0.32% in the U.S.). High-yield bonds followed suit (+0.04% in Europe, +0.13% in the U.S.). By contrast, investors shunned emerging debt (-0.68% in local currencies).

Lastly, gold posted a third straight weekly gain on Friday (+1.14%, spot price at $1,807.76/Oz), fuelled by falling yields as well as a weaker dollar (dollar index down -0.15% to 92.10).

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