Report (Premium Edition) Updated 07-6-2021

Tip: Use this as a quick guide on the short-term direction (1-2 weeks) of key markets. It is not a signal to buy or sell, just to show the trend. This is a quick cheat sheet to know the trend and help understand what is happening with the markets in the short term. I started making this section years ago because once had a client that would call me nearly every day asking the direction of the markets.

Dow34786.360.44%152.8234821.9334613.49Strong Bull
S&P 5004352.330.75%32.44355.434326.6Strong Bull
Crude (WTI)76.135-0.03%-0.2476.95476.06Bull
10 Year1.4271−0.13%−0.00181.44741.417Bear
US Dollar Index92.3430.11%0.10592.42492.004Bull

Tip: Use this section to know the performance of various sectors, weight portfolios, or look for trades. Modern portfolio theory stresses the importance of diversification, but recently several sectors like technology have outperformed others like utilities. This is also a way to narrow the sectors to find investment opportunities.

REIT Alert: Due to Covid-19, there is a large percentage of people that have not paid rent or mortgages. We continue to be very worried about the effect it could have on real estate investment trusts (REITS) value. Even though the sectors may trending bullish, we believe that REITs could have a significant drop in value.

Sector Name5-Day Return1-Month Return3-Month ReturnYTD ReturnYTD Return vs S&P 5003-Year Return5-Year ReturnTrend
 Basic Materials0.80%-5.10%4.60%16.70%0.10%47.10%94.30%Bear
 Communication Services1.10%4.60%10.00%21.40%4.70%75.50%62.70%Bull
 Consumer Cyclical1.60%4.70%6.70%15.70%-0.90%95.40%177.00%Bull
 Consumer Defensive0.10%-1.10%3.10%5.90%-10.70%47.30%47.30%Neutral
 Financial Services-0.40%-2.80%6.90%26.10%9.40%43.90%114.60%Neutral
 Real Estate-0.40%0.40%10.40%22.30%5.70%42.00%41.70%Bull

Key Drivers for the Week of July 5th, 2021

TIP – This is a 1-minute brief bullet-point summary. It is a tool that gives investors and financial a fast and simple list of what to watch for and talking points for the week.

  • Q3 global growth continues apace on strength in U.S., UK, Europe, China
  • U.S. markets closed Monday in observance of July 4 Independence Day 
  • U.S. calendar light with June ISM services, May JOLTS; FOMC minutes 
  • Canada releases BoC’s Q2 Business Outlook Survey; employment report due
  • RBA on hold, may tweak QE posture; Malaysia’s Bank Negara seen steady
  • China services PMI, CPI, PPI awaited; Japan services PMI, consumption due
  • European Commission forecasts likely upgrade growth, inflation projections
  • Final Eurozone PMIs, retail sales; German ZEW, mfg orders, production
  • UK slate has final services and composite PMIs, production, trade data
  • Core central banks talking about QE, but rate hikes a long way away
  • U.S. focus: jobs, ISM, PMIs, vehicle sales, housing, confidence data due

Stocks & ETF Watch List

Tip: Use this section to find stocks and ETFs to add value to your portfolio by increasing the alpha (return) and decreasing beta (beta). Our list is updated monthly to help provide our readers with timely insights. Readers should do their own research before making any investment. In order to make our report easier to read, we are now including the stocks as lists for readers in separate posts.

  • Inflation Stock Picks: List of stocks that we think should perform better in a rising inflation environment. Click here
  • Auto Parts Stock Picks: Auto parts companies are likely to see their stocks rise as the average age of cars and light trucks increased from 11.9 years in January 2017 to 12.2 years in January 2021, according to new data from IHS Markit. Below are the top auto parts companies that investors should buy now before the profits roll in. Click here.
  • Solid Picks: This group of stock/ETF picks is likely to experience growth and perform well into the near future. Click here.
  • Dividend Stocks: List of stocks that have excellent dividends and business performance. Click here.
  • Dividend Growth Stocks: List of stocks that have a history of growing dividends. Click here.
  • Dividend ETFs Picks: This list of ETFs is selected for their ability to pay dividends. Click here.
  • Dogs of the Dow: This list of DOW stocks based on H. G. Schneider’s Article in the Journal of Finance in 1951 that used the price-earnings ratio. The general idea is that blue-chip companies that pay a dividend are more likely to withstand an economic downturn. Click here.

Week Ahead: Not Too Hot, Not Too Cold

Summary & Commentary

The major currencies are plying narrow ranges in early week trading. The dollar is roughly 0.5% on levels seen this time last week despite shifting lower on Friday following the ‘goldilocks’ U.S. June jobs report, which was neither too cold so as to signal declining economic momentum, nor too warm so as to shift the needle on Fed policy tapering expectations.

Specifically, the June jobs report revealed an upside surprise for payrolls, but it came alongside a big workweek drop and a shift in jobs toward low-paid workers, leaving a lower trajectory for hours-worked, and hence a weaker June path for economic activity than assumed.

The wage data were a tad stronger than assumed in June but were revised down in May, leaving only a slightly stronger than assumed path. The household data undershot assumptions. Overall, the report reveals downside risk for near-term outlook, despite firm payroll data.

Payrolls in the U.S. remain some 6.8 mln below pre-pandemic levels, and the labor market still remains some way from what the Fed would deem to be making “substantial progress” in order for it to justify policy tightening.

However, the market continues to become more Bullish – and it dangerous.

A recent survey by Natixis Investment Managers of 750 individual investors expects to earn 17.3% after inflation. This is largely due to the S&P 500 returning 18.4% last year and the 15.9% return this year. It is two times the 7.1% average stock market return since 1926 and we are looking at rising inflation similar to the 1970s.

For those that don’t remember, the worst stock performance of the 1970s came when inflation increased rapidly and double to about 6% from 1972 to 1973. The market dropped 40%! However, it came back by 1980 leaving investors flat for most of the decade.

This type of expectation could lead to a massive sell-off and market drop.

We are caught between a rock and hard place. On one hand, we have a bull market with overpriced stocks. On the other hand, we have rising inflation that is eating away the purchasing power of cash.

I think advisors and investors need to weigh their portfolios more toward consumer defensive stocks and commodities. Caution must be taken on some commodities such as lumber as the prices have been falling. My latest idea is auto parts stocks because people are holding onto cars for much longer.

Many have recommended gold and for good reason. In 1971 gold traded at $35 an ounce, but was up to $850 by 1980. This is a 2300% gain! It is likely to go up, but not as much in the 1970s. So I wouldn’t put overly weight on this allocation.

Global growth should be on track for a solid pace over the second half of the year amid a widening distribution of vaccines, reopenings of economies, and ongoing stimulus measures, even if the Delta variant, bottlenecks, labor market shortages, and supply chain disruptions create headwinds.

Pent-up demand should remain a major factor underpinning the overall recovery, supporting a pick up in services, alongside a healthy pace of production to meet the demand.

The rebound in Europe, helped by easing in travel restrictions, along with the U.S. recovery, should help set the pace, taking over from China where activity has been losing steam.

The markets will reopen after the July 4 holiday weekend. Wall Street is coming off of record highs as inflation warnings get louder and tapering expectations linger amid strong data releases signaling that virus jitter may slow, but not derail the global recovery.

The not too hot, not too cold U.S. jobs report will keep the FOMC on hold, with the ECB accommodative as well, but keeping a watchful eye on inflation. The RBA will be closely followed this week as it might tweak its QE purchases.


The U.S. jobs report was pretty representative of what’s been transpiring in the economy of late as more states reopen, while 55% of the population as received at least one a dose of vaccine (47% fully vaxed). Payrolls posted a solid 850k gain thanks to the 642k jump in service sector jobs that was led by a 343k surge in the leisure/hospitality component, and a huge 230k jump in state and local education employment.

Payrolls have now reclaimed 70% of the jobs lost in the pandemic from March and April 2020. Hours-worked have reclaimed a larger 78% of the drop. While that spells a promising outlook starting out Q3, we’re still below the FOMC’s goal, and that will mean stimulus will remain in place for the foreseeable future. Additionally, it will likely be tough for producers which are already at full throttle, to keep up the pace, suggesting a marginal slowing in Q3 growth to about a 7.0% pace from an assumed 7.3% rate for Q2.

Of note, Wall Street surged to fresh record highs from the three major indexes on Friday as the jobs data reflected an ongoing solid recovery, but not strong enough to force the Fed’s tightening hand anytime soon. Some Fed watchers thought QE tapering plans could be announced at the August Jackson Hole meeting. But that looks doubtful now as the employment report, and a lot of the noise still in the numbers will keep the Fed on cautious footing.

The calendar is slim in the abbreviated first week of the new quarter as the July 4 holiday will be observed on Monday. The June ISM services report will be the highlight for data, while the FOMC releases the minutes to the June 15-16 FOMC. For the ISM-NMI (Tuesday), we expect a slight 1.0 pullback to 63.0 after the 1.3 point pop to a fresh all-time peak of 64.0 in May.

This would be a fourth straight month with a 60-handle and leaving what should be the four highest readings in history, reflecting the bounce in the service sector as it extends its post-pandemic recovery. The other data of interest will be the May JOLTS report (Wednesday). It soared 998k in April to 9,286k, a record high, bypassing the prior peak set in March at 8,288k. Other reports this week include wholesale trade (Friday) where we forecast solid gains of 0.9% for sales and 1.2% for inventories as businesses look to rebuild inventories alongside an updraft in the nominal measures from rising prices.

The FOMC minutes (Wednesday) for the June 15-16 policy meeting will be very interesting given the shift forward in the dots. But, the report will not be too telling at this point given the Fedspeak over the past couple of weeks has soothed worries over QE tapering. Indeed, Chair Powell ease worries in his presser as he noted a rate hike was never discussed. Current voter Bostic admitted he was one of the dots that moved up, while Bullard indicated that the dot shift was a “natural” tilt given the bounce in the economy and inflation.

For Canada, the Bank of Canada’s Q2 Business Outlook Survey (Monday) begins this week. The survey, conducted between late May and the middle of June, should reveal a further improvement in sentiment as businesses reopen and vaccination numbers ramp higher. The inflation outlook should remain elevated amid surging commodity prices and disruptions to the supply chain.

But the highlight of the docket will be the employment report (Friday), projected to show a 250k rebound in June as reopenings began during the month following the easing of third-wave restrictions. Employment fell -68.0k in May after the -207.1k drop in April as restrictions took hold. Jobs improved 303.1k in March and 259.2k in February, but lost -212.8k in January. The unemployment rate is seen retreating to 7.7% from 8.2% previously — it posted a pandemic low 7.5% in March, having peaked at 13.7% in May of last year. The June Ivey PMI is scheduled for release on Wednesday.

The next rate announcement from the BoC is on July 14 — we anticipate a further cut to QE as the bank unwinds the emergency policy setting amid a recovering economy. The bank is expected to maintain its 0.25% rate setting at the July meeting and for an extended period ahead. The C$1.0 bln taper seen in July would leave QE totals at C$2.0 bln. A follow-up cut of C$1.0 bln to C$1.0 bln in QE is seen around the turn of the year. The BoC tapered its QE program to C$3.0 bln from C$4.0 bln in April but held it steady at the June announcement. Notably, the BoC has taken tangible steps to trim emergency accommodation, while the Fed is just getting started talking about tapering.


This week’s regional calendar will include several important reports that will provide updates on inflation, manufacturing, and trade. However, we don’t expect any significant changes to the general trends of solid but slowing growth in China, and ongoing disruptions in Japan from the spikes in the virus and the ongoing emergency restrictions. China’s June services PMI, along with June CPI and PPI features. Japan’s docket has June services PMI and May consumption. For central banks, Australia’s RBA meets. While no changes to its current 0.10% OCR are expected, there is risk of tweaks to the QE purchase program. In Malaysia, Bank Negara is also seen on hold, with its overnight policy rate steady at 1.75%.

China’s June services PMI (Monday) is expected to fall further to a still robust 54.9, after sliding 1.2 points to 55.1 in May, reflecting the deceleration in activity. It was at 58.4 a year ago, which is the record high. This data series has been above the 50 mark since April 2020, after plunging to 26.5 in February 2020 as the pandemic kicked off in earnest. The recent slowing, however, is in part a function of the impacts from the spike in the Delta covid variance. June CPI (Friday) should edge higher to a 1.4% y/y pace from 1.3% in May.

Prices moved up into positive growth territory in March from deflationary outcomes in January (-0.3%) and February (-0.2%) and have been appreciating since. June PPI (Friday) is expected to remain steady at 9.0% y/y. After spending the last eleven months of 2020 in negative territory, producer prices have surged in the first half of 2021 thanks to global shortages that were driven by broken pandemic-related supply chains. June loan data are tentatively due on Friday. The PBoC looks to be shifting its focus away supporting the rebound in growth to “maintaining overall economic stability and enhance resilient economic development,” along with preventing external shocks, which suggest less accommodation that will also tap the brakes on growth marginally.

Japan June services PMI (Monday) should dip fractionally to 47.0 in the final reading, from the 47.2 in the preliminary. The slippage is a function of the virus and renewed states of emergencies. However, it is a little stronger than the 46.5 from May. The index was at 45.0 last June. And it has been below the 50 boom/bust level since February of 2020. May consumption (Tuesday) is forecast slowing modestly to a 9.0% y/y clip, versus the previous 13.0% outcome. The May current account surplus (Thursday) should narrow to JPY 1,000. bln from JPY 1,321,8 bln. June bank loan figures are due Thursday as well.

Taiwan May unemployment (Tuesday) should remain steady at 3.7%. June CPI (Wednesday) is penciled in at 2.2% y/y from 2.5%, while June exports are set to rise 30.0% y/y from 38.6% previously. May leading indicators are due Thursday. South Korea May current account ((Thursday) should widen slightly to $2.0 bln from $1.9 bln.

Malaysia’s Bank Negara meets on Thursday, with rates expected unchanged at 1.75%, as Covid cases remain high. The Bank has cut rates by a total of 125 basis points in 2020. Thailand June CPI (Monday) is forecast to have warmed to 2.5% y/y from 2.4%. Singapore May retail sales (Monday) are seen up 0.7% y/y after falling 1.3% in April. Advance Q2 GDP (Wednesday) is expected to improve to 1.5% y/y from 1.3%. Philippines June CPI (Tuesday) should cool slightly to 4.4% y/y from 4.5%. The May trade report (Friday) should see the deficit narrow to $2.5 bln from %2.7 bln.

In Australia the RBA meets (Tuesday). It is universally expected to leave its policy rate unchanged at the record low 0.10% as it continues to battle covid with ongoing restrictions across much of the country. However, there is risk of tweaks to its bond buying program, possibly shifting to a more flexible purchase plan. And many believe the Bank will not extend YCC out to the November 2024 bond from the current April 2024. For data, May building approvals are seen falling -5.0% on the month after plunging -8.6% in April. The June Melbourne Institute inflation gauge, and June ANZ job ads are due too (Monday).RBA governor Lowe will speak following Tuesday’s policy announcement and will give a speech (Thursday) at the Economic Society of Australia.

In New Zealand, the economic docket is empty this week, though markets will look ahead to the RBNZ’s next meeting on July 14. No change to the 0.25% rate setting is expected. However, the Fed’s hawkish tilt at its last meeting has rattled nerves on the outlook for the RBNZ and RBA, with worries that the banks may begin their own public discussion of tapering.


Eurozone: the European Commission will present its updated set of forecasts (Wednesday) and like the ECB, is set to upgrade growth and inflation projections for this year. Vaccination programs are making progress and the EU’s vaccination certificate came into effect at the start of the month and should unlock travel over the summer not just within the EU, but also with the likes of Switzerland and Norway. There are also talks with the U.K. on reciprocal acceptance, although officials may want to see how vaccines cope with the spike in U.K. infection numbers over the past week.

The pandemic is not over, however, and against that background ECB officials are likely to continue to err on the side of caution for now, even if confidence data look very encouraging. We still expect the central bank to start reigning in monthly asset purchases later in the year, but the next major decision will be on the future of PEPP, which allowed the ECB to temporarily suspend restrictions on the distribution of purchases. The program is currently set to end in March next year and officials are unlikely to take a final decision on whether to extend the program before December. But the hawks and the doves are also pushing their arguments, which could add to volatility, especially over the quieter summer months.

Final readings for the June Eurozone services and composite PMIs (Monday) are not expected to bring major revisions which would leave the composite at a very strong 59.2 for the end of the second quarter. That would confirm not only that activity rebounded sharply, but also that activity is on a strong setting for the third quarter, even if holiday travel may not quite be back to pre-crisis levels. Meanwhile, concern over the more infectious Delta variant, along with tapering jitters, are likely to weigh on German ZEW investor confidence (Tuesday) which we expect to drop back slightly to 77.0 (median 75.4) in July readings, from 79.8 in June. That would still leave confidence at high levels, with the index just shy of the 84.4 from March, which was the best since February 2000.

The rest of the calendar is pretty backward looking and is unlikely to change the outlook fundamentally. Eurozone retail sales (Tuesday) are projected rebounding 3.0% m/m (median 4.2%) in May after contracting -3.1% m/m in April. German manufacturing orders (Tuesday) for May are seen jumping 1.3% m/m (median 1.1%) after sliding -0.2% m/m previously. And May German production (Wednesday) is likely to have risen around 0.5% m/m (median 0.4%), after falling -1.0% m/m in April. Supply chain constraints and staff shortages seem to be curtailing output despite a spike in demand, which is adding to price pressures.

The German trade surplus (Friday) for May could still come in slightly lower, also thanks to the uptick in import price inflation and the calendar also include French production numbers (Friday).

U.K.: the UK recovery remains robust, although upward momentum has plateaued somewhat. The UK has seen new covid cases spike to a rate of over 20k per day over the last week, continuing a steep upward trajectory. The spread has been driven by young unvaccinated adults catching the highly transmissible Delta variant, though there has not been any significant pass through to hospitalizations and mortality rates, which remain a basement level. The government has, therefore, refrained from implementing new restrictive measures, and the economy remains relatively open. The government has yet to decide whether to fully reopen the economy on 19 July, the scheduled “freedom day”, which was already delayed from 21 June. International travel restrictions and other measures are likely to remain in place even beyond “freedom day”.

The calendar this week is highlighted by the final June PMI survey releases for the services and composite reports (Monday), along with production and trade data for May (Friday). The final June manufacturing PMI report, released last Friday, was revised down slightly, although to a still solid 63.9 reading. The data showed input prices rising at a series record clip, caused by what are expected to be temporary, post-lockdown mismatches between supply and demand. The services and composite reports can be expected to paint a similar picture.

Switzerland: The calendar this week is quiet, highlighted only by the June jobs report (Thursday).

Economic Data Calendar

Complete Calendar: Click here to view the complete calendar of all the events.

We have an extremely light release schedule in the first full week of July. We expect another round of solid wholesale sales and inventory gains in May, as businesses attempt to rebuild inventories alongside an updraft in the nominal measures from rising prices. We also expect a modest pullback in the ISM-NMI from a May peak, leaving what should still be the four highest readings in history through the month of June as the service sector posts its post-pandemic recovery.

Week of July 5

The markets enjoyed the big 850k payroll gain in June, and a firm 0.3% hourly earnings gain that left a 3.6% y/y increase was a good sign for nominal growth in the economy as well.

Yet, the June jobs gain was accompanied by a drop in the workweek to 34.7 hours after a May trimming to 34.8 from 34.9. With that, we saw disappointing 0.2% gains for hours worked in both May and June, including the big downward May revision from a 0.5% rise. Indeed, total hours worked in the economy in June were below the level originally reported for May. To put this in perspective, had the workweek sat at the expected 34.9 in June, payrolls would have actually fallen. From the standpoint of output and hours-worked, the June report significantly underscores assumptions.

We’ve referenced the Q2 GDP growth clip as an effective “speed limit” for U.S. output growth, given the massive overshoot of demand to supply in the face of massive stimulus payments into Q2 that has left producers at full throttle. We revised this Q2 clip down to 7.3%, and we still assume 7.0% growth in Q3 as the economy moves back into inventory accumulation. If economic growth decelerates following the Q2 peak, as seems likely as stimulus unwinds, it will be hard for high-end 2021 GDP growth forecasts to materialize if Q2 GDP growth sits at 7.3%.

In that context, it’s noteworthy that the CBO’s new budget estimates reflect an assumed 7.4% real GDP growth rate in 2021, versus an FOMC central tendency of 6.8%-7.3%, and our own estimate of 6.3%. The CBO’s prior forecasts were widely pessimistic, but they have apparently adopted the opposite extreme.

Aside from this swing, actual Treasury receipts have been remarkably solid through the last June Daily Treasury statement, and we now assume that FY21 revenue will beat the new CBO assumptions by $63 bln. The CBO now pegs the FY21 deficit at $3,003 bln, while we peg the deficit at $2,940 bln using the same spending assumptions. Perhaps the CBO choose lofty 2021 GDP assumptions to fit the observed strength in Treasury receipts? In any case, many official forecasts will face the need for big markdowns over the coming months if our own GDP estimates prove correct.

ISM-NMI: 63.0

The ISM-NMI index is expected to fall to 63.0 from 64.0 in May, 62.7 in April, and 63.7 in March, leaving the four highest readings in history. We saw an 11-year low of 41.8 in April of 2020, and an all-time low of 37.8 in November of 2008. Producer sentiment has remained strong through Q2, as vaccines and two massive Q1 stimulus distributions fueled a steep retail sales climb to a March-April peak, while businesses will face the need to rebuild inventories probably throughout 2021, as factories attempt to catch up with demand.

Initial Jobless Claims: 380k

Initial jobless claims are expected to rise 16k to 380k, after a -51k decrease to a new cycle-low of 364k last week, but a 44k rise to 418k in the BLS survey week. Before the mid-June back-tracking for claims, we had seen a steep rate of decline over a 6-week stretch to new cycle-lows. Claims are expected to average 367k in July, after averages of 394k in June, 428k in May, 582k in April, and 724k in March. The 418k June BLS survey week reading sat well below recent survey week readings of 444k in May, 566k in April, 765k in March, and 847k in February. We assume a 600k July payroll rise, following a 543k average monthly gain thus far in 2021.

Continuing claims rose by 56k to 3,469k in the week of June 19, following an upwardly revised 3,413k figure. We expect continuing claims to fall -69k to 3,400k for the week ending June 26. The downtrend in the continuing claims data has moderated since March, just as the drop in initial claims has picked up steam. Continuing claims fell -198k between the May and June BLS survey weeks. We saw prior drops of -42k in May, -188k in April, -628k in March, -409k in February, -555k in January, and -705k in December.

Wholesale Inventories: 1.1%/0.9%

Wholesale sales are estimated to grow 0.9% in May, after a 0.8% April rise, while inventories grow 1.1% after a 1.0% April gain as seen in the advance release. Rising commodity prices will lift the nominal measures, as was likely seen in March and April, following a big February hit from weather disruptions. The I/S ratio should hold at 1.23 for a second month, up from the 6-year low of 1.22 seen in March, versus an all-time low of 1.12 in June of 2008 and an all-time high of 1.66 in April of 2020. The ratio is struggling to climb back toward the pre-pandemic reading of 1.32 in January and February of 2020. Business inventories should rise 0.5% in May, with other component readings of 0.9% for factories and -0.8% for retailers. The wholesale sector has been boosted by the robust recovery in trade with China. International trade is disproportionately captured at the wholesale level of production.

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