The week on Wall St.
Overcoming a COVID-related economic growth scare, stocks moved higher amid a week of strong corporate earnings reports.
The Dow Jones Industrial Average rose 1.08%, while the Standard & Poor’s 500 gained 1.96%. The Nasdaq Composite index soared 2.84% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, dipped 0.20%.1,2,3
Delta Variant Head Fake
Stocks staged a broad retreat on Monday as traders worried about the adverse economic implications of growing Delta variant infections. Economically sensitive sectors, such as energy, financials, industrials, and materials, absorbed the brunt of Monday’s sell-off.
But the markets did a quick about face, posting four-consecutive days of gains and leaving the three major averages with fresh record highs.4
The sharp reversal may be attributable to a “buy on the dip” investor mentality, the absence of investment alternatives to stocks in this low interest rate environment, and massive financial liquidity. Stocks were also lifted by a healthy kick-off to the second quarter earnings season.
Strong Start
The earnings season moved into full swing last week, and the results exceeded the market’s high expectations.
Of the 120 companies in the S&P 500 index that have reported as of Friday, July 23, 89% of them beat the Street’s earnings-per-share estimates by, on average, 20.6%. Financials and Consumer Discretionary sectors provided the biggest earnings surprises (+28.9% and +24.5%, respectively), while Materials and Utilities delivered the smallest positive surprises (+5.3% and +2.5%, respectively).
These earnings beats are leading Wall Street analysts to raise earnings estimates for 3Q 2021 through 1Q 2022.5
Final Thought
The National Bureau of Economic Research said last week that the pandemic-induced recession ended in April 2020, officially lasting two months and making it the shortest recession in U.S. history.6
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