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 iShares NASDAQ Biotech Index Fund (IBB) & iShares US Industrials ETF (IYJ)

The heart of this quarter’s earnings season has arrived, results on balance have been very strong with many reports coming in well above analyst expectations and stock markets…are not doing very much. Major indices have failed to advance very far suggesting that the gains of the last year have already priced in strong expectations.

It’s also possible that stocks may be getting priced to perfection with the balance of risks shifting to the downside. COVID Delta wave continued to weigh on reopening-sensitive sectors, and the prospect of increasing government intervention in Chinese companies sent the Hang Seng crashing down 8% in two days.

Although investors don’t appear ready to send stocks higher at the moment, governments don’t appear ready to let stocks slide either. After two days of sharp declines in Chinese equities, China’s government did step in to calm the waters adding some quick cash to its financial system. Meanwhile at yesterday’s Fed meeting, not only did the US central bank talk up the economy, it reiterated that it is comfortable with higher inflation for a while and that it has no plans to reduce stimulus (although it may revisit this stance at coming meetings). Perhaps most significantly, the Fed introduced two new standing repo facilities (one for domestic transaction, one for foreign transactions) to keep money markets working smoothly.

Significant capital flows and relative strength rotation continues to roll though world markets. This week, commodity prices continued to rebound from recent weakness, particularly livestock, crude oil and softs. Cryptocurrencies also roared back to life with Bitcoin taking another run at $40,000. On the other hand, defensive havens like gold and US bonds drifted aimlessly.

Most importantly, the Russell 2000 SmallCap Index successfully retested 2,100 support once again, keeping its sideways trend intact and containing the bears. The technology and communications sensitive NASDAQ Composite continued to climb along with the large-cap Dow Jones Industrial Average. Over the next week or so, over 2,000 North American listed companies are scheduled to report results. In terms of sectors, Big Tech and Big Pharma are joined by Big Oil and Big Insurance along with automotive, apparel, video game and many other groups. While the focus in the US starts to turn from big cap to mid and small cap companies, the four days following Monday’s Canadian holiday brings results from a number of the largest companies north of the border.

The turn of the month also brings a number of economic reports starting with today’s US GDP report through PMI reports early in the week to the big US nonfarm payrolls and Canadian employment reports next Friday.

In this issue of Equity Leaders Weekly, we look at the Biotechnology and Industrials sectors as examples of ongoing changes in equity sector leadership as we move through the summer.

iShares NASDAQ Biotech Index Fund (IBB) 

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