Capital Market Impact Weekly market commentary

illustration of a yellow newspaper on a blue background

Markets pause on a rebound in cases

July 19, 2021


  • Equity markets have paused following an impressive run to record levels, as rebounding COVID-19 cases and rising tensions with China have replaced inflation as the primary caution of investors. Worries about peak economic and earnings growth is driving a move to defensive exposure. Other risk assets are seeing weakness, including commodity prices and Bitcoin. Interest rates continue to reflect more uncertainty than equity levels, with the 10-year Treasury yield collapsing to 1.22% on Monday, the lowest level since February and more than 0.5% below the March high.
  • While equity markets remain just 1% below the record high, other factors reflect increasing nervousness of investors. Momentum has stalled, with new high data at the lowest level since last November. Market breadth has deteriorated, with less than half of the S&P 500® Index above their 50-day moving average and the Russell 2000 Index now down nearly 9% from the record set in mid-March. Investor sentiment has collapsed, with the CNN Fear & Greed Index at 23 on a scale from 0-100, the weakest level since before the pandemic. A second week of equity declines would challenge the recent “buy the dip” mentality of investors. While sentiment is deteriorating, Ned Davis Research notes than Americans’ stock allocations are roughly 60%, just below the 62% record from the technology bubble, suggesting there is little “dry powder” to buy dips.
  • The S&P 500 does not reflect pressures underlying the equity and fixed income market and could be susceptible to near-term weakness. Elevated volatility could challenge resolve, but weakness is unlikely to be persistent beyond normal seasonality.


  • COVID-19 cases have rebounded in the U.S. this month, with the delta variant spreading in areas of low vaccinations, while some high-profile infections of vaccinated individuals. Cases rose by 70%, hospitalizations up 36% and deaths rose 26% in the most recent week, though numbers remain a fraction of the levels from January, with cases down 90% and deaths down 95% from the peak.
  • Lost in the focus on cases last week were hotter-than-expected readings on CPI (+5.4% from a year ago) and PPI (+7.3%, a record high since data began in 2010). Fed Chair Powell answered multiple questions from Congress, keeping to his argument that pressures will ease when bottlenecks are cleared. Treasury Secretary Yellen noted that there could be several more months of price increases ahead before trending back to normal. Bank of America’s Global Fund Manager Survey showed 70% of respondents felt inflation was transitory, though the definition of transitory is shifting in real-time. Those on Social Security should benefit from the hot inflation, with the cost-of-living adjustment expected to exceed 6% next year.
  • Second-quarter earnings season unofficially kicked off this week, with 8% of the S&P 500 companies having reported average upside to estimates of 18% and results now forecast to grow by 70%. Many expect the results to continue to beat expectations like the record 23% beat versus consensus in the first quarter. Upside should come from low expectations, tailwinds from fiscal and monetary stimulus, an accelerating economy, and improving profit margins. Conference calls will be monitored for views on supply chain constraints, labor shortages, and pricing power after the discussion of inflation jumped nine times in the first quarter.
  • Details on the bipartisan infrastructure deal continue to shift, with leaders dropping the provision to step up IRS enforcement as revenue generator. The move is ceremonial, however, as it will likely find its way into the larger, unilateral, domestic spending agenda by Democrats. Senator Schumer intends to hold a cloture vote to end debate on Wednesday to set up a final vote.

What to Watch

  • Earnings will be the primary focus of investors this week, with a significant acceleration in releases. Economic data include housing starts Tuesday, existing home sales and leading indicators Thursday, and PMI data on Friday.

Review relevant client material from Nationwide


  • This material is not a recommendation to buy, sell, hold or roll over any asset, adopt an investment strategy, retain a specific investment manager or use a particular account type. It does not take into account the specific investment objectives, tax and financial condition, or particular needs of any specific person. Investors should work with their financial professional to discuss their specific situation.

    Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes Funds are not sponsored, endorsed, or promoted by Russell, and Russell bears no liability with respect to any such funds or securities or any index on which such funds or securities are based. Russell ® is a trademark of Russell Investment Group.

    Nationwide Funds distributed by Nationwide Fund Distributors LLC (NFD), member FINRA, Columbus, Ohio. Nationwide Investment Services Corporation (NISC), member FINRA.

    Nationwide, the Nationwide N and Eagle, and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. © 2021