Fear Falters - Kuby's Commentary 07.26.2021

Never-Ending Rally Back on Track Despite the scary headlines, the "Fear Index" continues to falter. The Bull Market seemed to show signs of battle fatigue, fighting the stiff headwinds of inflationary pressures and the emergence of the highly contagious Delta variant of the coronavirus. Monday proved to be the worst trading day in over 9 months for equities, with a 2% across the board decline and a 14.3% increase in the Fear Index (VIX). By Tuesday morning, without any positive news, the sell-off was over, and the never-ending rally was back on track. Indeed, by Friday's close the S&P 500, the Nasdaq Composite, and the DJIA, were all at record highs, and the Fear Index had resumed its downward slope. We have asked our summer interns to send us articles from the previous week that they believe are most relevant. Summer Intern Sam Audy, from Indiana University's Kelley School of Business, focused on monetary policy experiment. He referenced an article from MarketWatch that highlighted modern monetary theory and its potential danger, providing the following quote: "the transition to MMT may create instability. An exchange-rate or inflation shock would affect existing investors and trade. Policymakers may be unable to control the process once set in motion. Where supply constraints are reached, excessive deficit-financed spending would result in inflation, higher rates and a currency correction." We continue to monitor the dollar for signs of weakness, and believe gold remains a reasonable hedge against the possible future instability. Investors Aren't Backing Down Christian Bryan, one of our interns from the University of Chicago (Go Maroons!), noted "Through what I saw it looks like many people are saying that regardless of if the delta variant becomes more prevalent, America and Europe are unlikely to truly shut down again, meaning that the economic growth pace will not be affected." It will be a big week for earnings releases, with 180 S&P 500 companies reporting second quarter results. The economic calendar is also busy, with New Home Sales on Monday, Durable Goods and Consumer Confidence on Tuesday, GDP on Thursday, and Personal Income on Friday. Perhaps the most important event of the week will be the FOMC monetary policy decision on Wednesday, with expectations that the central bank will announce a timeline for reducing its bond purchases, current at $120 billion a month. Stocks on the Move: HCSG, RGP, PRTS, RCKY