So far over 2021, The S&P 500 has hit more all-time highs than in the last three years combined. The 50th all-time high of the year helped the Index jump 1.5% over the week.
Much of the talk during the week was focus around the Jackson Hole Symposium. At the event, U.S. Federal Reserve Chairman Jerome Powell restated that policy would remain supportive, even after bond purchases are scaled back. Stocks rallied following his speech on Friday as the supportive tone eased any fears of a sudden pullback in stimulus.
Broadly speaking, markets have consistently climbed higher, but volatility continues to bubbles beneath the surface.
Some of the lagging “reopen” areas since May (Energy, Financials, Consumer Discretionary) led the move higher, while the more “defensive” areas traded lower.
The Russell 2000, an index of U.S. small-cap stocks, climbed more than 5% for the week, outperforming its large-cap peers by a wide margin. The risk-on sentiment that proceeded the Jackson Hole Symposium drove the most recent surge.
Undoubtedly, risks remain, and the negative headlines can become hard to ignore following such a strong run-up, but we believe the backdrop for equities is broadly positive.
The S&P 500 profit margins are now at multi-decade highs, Q2 earnings finished well ahead of expectations, consumer balance sheets are at their stronger in decades, and a low-interest rates environment continues to support greater spending. All this reinforces our belief that both the fundamental and technical support indicators signal a supportive environment over the medium term.
At a sector level, more economically sensitive areas seemingly have a bit more room to run. High growth names have remained out of favour in 2021, with the likes of financials and energy leading much of the recent upside.
With both rising yields and rising oil prices likely over the coming months, we see no reason for this recent trend to reverse.