The rotation into cyclicals last week sent a powerful message: investors are aligned with President Trump, disregarding the rise in Covid-19 infections. The S&P 500 climbed 1.25% last week, but industrials and materials posted much bigger gains (up 5.80% and 5.44%, respectively). Retail sales rose more than expected in June. The core CPI excluding shelter posted the biggest monthly gain (0.31% m/m) since December 2011.
Daily new infections for Covid-19 have averaged 74,188 over the last two reporting days, a new high and up 10.9% over a week earlier. Investors are focussed on deaths, which averaged 954 over the last two days. Next week will be critical. If the fatality rate stays relatively ‘low’, the US president will feel vindicated. The critical benchmark for markets may be the April high (2,748, April 21st).
Housing shows what a V-shaped recovery can look like. The NAHB index for prospective home buyers jumped to 58 this month, matching the previous cyclical highs (January 2020 and December 2017, see chart).
Summary
• Covid-19 infections keep on rising (US, India)
• But investors rotate into cyclicals
• Rebound in CPI supports reflation thesis, for now
To download a pdf of the full report, click here
