Anna Rathbun, Chief Investment Officer

Theglobal supply shortages have resulted in much lamentation about rapidly risingprices, but it has now become clear that the ripple effect has extended intoour recovery prospects. In the U.S., the Purchasing Managers Index formanufacturing and services sectors disappointed as surveys revealed longersupply delivery times and shortages weighing on businesses. Consumer sentimentsurveys also uncovered some anxiety around affordability of housing, and thecomputer chip shortage that has now famously pushed up car prices hastranslated to falling sales. Some of these stories are isolated to selectindustries, but there is a growing view that the recovery momentum may beslowing down. And the Delta variant’s spread across the unvaccinated areas ofthe globe is curbing expectations of blockbuster growth in the second half ofthe year. Although the financial markets continued to rise in the aggregate,the dispersion under the hood reflected these general concerns.


  • The S&P 500Index continued to hit multiple highs during the month and ended July as thesixth consecutive month of positive returns.
  • Despite ending themonth in the green, the markets experienced bouts of volatility as concernsabout the pace of global recovery crept into sentiment, which led to investorsseeking defensive sectors.
  • The earningsgrowth profile for companies in the S&P 500 Index for Q2 2021 earningsseason is one of optimism and much of this positive corporate news is bakedinto the price.
  • Developed marketsoutside the U.S. registered positive returns with currency having a minimalimpact as the vaccination success in Europe has allowed the countries to reopentheir economies confidently.
  • Developing marketsunderperformed significantly with MSCI China returning -13.84% for the month. Theheadwind for the EM index came from government interference in the techindustry and a surprise crackdown in education surprised investors.
  • In the fixed incomemarkets, the descent of the longer yields signaled a firm disagreement with thepopular inflation narrative during the second quarter, and in July, theheadlines seemed to catch on to what the bond market was pricing in.
  • Falling yieldsmean rising bond prices, and despite spreads widening from equity marketvolatility, duration and coupon income were the two outperforming factors inthe bond market.

Looking Ahead

In the heat of the summer, the pace of economic growth is losingsome steam. While the base case for recovery relies on the healthy state ofconsumer balance sheet, improving corporate earnings fundamentals, and progressin vaccination, there are a few things on our minds that may serve as bumps onthe road to growth. We have seen that producers are willing to pass down theirinput prices increases to the consumers, but the consumer appetite toaccommodate these increases will be put to the test in the coming months. Theinfrastructure bill discussions in Washington are expected to continue beyondthe August recess, and the details on the funding side of the bill may have taximplications. Adding to the noise will be negotiations around the debt ceilingthat looms ahead. Finally, the vaccination effort seems to be plateauing in theU.S., which makes the Delta variant conversation more relevant as the summerheat wanes. In the end, what matters is our reaction to the Delta variant, bothin policy and in individual behavior. The road to economic restoration looks abit cluttered, but we expect the U.S. economy to plow ahead.

More Information

For more information on the July financial market activity, please contact CBIZ Investment Advisory Services.

The information included in this update is provided for informational purposes only and should not be construed as investment advice. The views expressed are those of the author based on the data available when this update was written and are subject to change based on market conditions or other factors. CBIZ Investment Advisory Services and/or CBIZ Retirement Plan Services disclaims any liability for any direct or incidental loss incurred by applying information supplied in this update.

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Published on August 02, 2021