Strong corporate earnings and reassurance about continued accommodative monetary policy overshadowed the growing threat of the COVID-19 Delta variant to push U.S. stocks higher.
The $555 billion U.S. infrastructure bill plodded forward on its path through congress and appears likely to pass relatively soon. Bonds rose for the month as fixed-income investors seemed to view the increased COVID threat more seriously.
Delta Variant & Economic Recovery
Growth stocks outperformed value in July as the rise of the Delta variant threatened a return to shutdowns and reduced physical economic activity. In the UK and India, areas where Delta has already spread, the wave peaked after just over two months. There is hope the same will occur in the U.S., but it is unclear why this happened or if it will repeat.
Fed Chairman Powell downplayed the impact of Delta on policy, suggesting the economy has learned to adapt. Any slowing in jobs growth will provide more justification to continue bond purchases and ultra-low interest rates.
China’s ‘Big Tech’ Reined In
International stocks were lower overall, in part due to increasing shareholder-unfriendly behavior by China. Starting with the suspension of Ant Group’s IPO in November, Beijing has taken a series of actions to rein in China’s “big tech” as well as other key sectors. Most recently, the significant private education sector was mandated to be “non-profit.” There are multiple and varied motivations for these actions, but they are causing investors to question ownership rights and long-term profitability of public Chinese companies. For reference, Chinese stocks account for about 5% of the MSCI All Country World Index.