Weekly Investment Update
Stocks Broke Record High Again This Week
Published Friday, August 13, 2021 at: 7:51 PM EDT
The manufacturing purchasing managers index ticked lower in July but is not far off from a record high, while the more important service purchasing management index shot higher to a record high. Meanwhile, business owner optimism ticked lower in July and the S&P 500 closed the week by breaking another all-time closing high. Here’s a roundup of the financial economic news.
The Manufacturing Purchasing Managers Index came off its peak in July but was still at a very strong number by historic comparison. According to The Institute for Supply Management (ISM), which conducts this survey of purchasing management professionals at large companies monthly, a reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting. Nothing like a recession is indicated in the current reading.
The ISM also conducts a monthly survey of purchasing managers at service sector companies. Since the service sector accounts for 89% of economic activity in the U.S., this index is much more important to the financial economic outlook. The service economy survey shot higher in July, hitting its highest level since the index’ inception in January 2008, an impressive number
The Optimism Index, a monthly survey of business owners, decreased by 2.8 points in July to 99.7, reversing nearly the entire 2.9-point gain in June’s report, according to the National Association of Independent Business.
Six of the 10 index components of the business owner optimism index declined in July, while three improved, and one was unchanged. Sales expectations for the next three months decreased 11 points and business owners expecting better conditions over the next six months decreased 8 points.
Notably, 49% of business owners reported job openings that could not be filled, an increase of 3 points from June and a 48-year record high.
The Standard & Poor’s 500 stock index closed Friday at an all time high of 4,468.00 for the second week in a row. According to The Wall Street Journal, Friday marked the 48th time in 2021 that the index broke its record high. The S&P 500 gained +0.16% from Thursday and +0.70% from last week. Since the March 23, 2020, bear market low, the S&P 500 index is up +66.53%.
Inflation uncertainty and the spread of the Covid variant remain the two known major risks and could cause a sharp stock price decline, but a recession is not a threat.
A parting tip: Consider whether the next sharp drop in stock prices would present a strategic tax-selling opportunity to convert traditional IRA or 401(k) assets invested in stocks into tax-free Roth IRAs. With tax rates low but expected to be going up, converting to a Roth IRA in 2021 is something for retirement savers to evaluate in the current environment.
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