Weekly Market Update 10/08/2021
by Justin Long, on Oct 09, 2021
It's the final weekend before hockey season officially begins. Tuesday night will be the Golden Knights' home opener against the new Seattle Kraken!
As a company that is based in both Las Vegas and Seattle – as well as having family in both locations – this game will be one for the books! Laura and I have tickets for us and our entire family, who traveled from Washington to see their new team in action (and hopefully, lose). Are you excited for the upcoming season?
And now on to the recap of this week:
Weekly Market Summary
Value stocks lead market rebound amid some relief on the debt ceiling
The S&P 500 advanced 0.8% this week, overcoming a tough Monday session, as investors bought the dip and breathed a sigh of relief that a debt-ceiling agreement was reached in the Senate.
The Dow Jones Industrial Average outperformed with a 1.2% gain, while the Nasdaq Composite increased just 0.1% and the Russell 2000 decreased 0.4%.
Eight of the 11 S&P 500 sectors closed higher, led by energy (+5.0%) with a 5% gain and financials (+2.3%) with a 2% gain. These groups helped drive the outperformance of the Russell 1000 Value Index (+1.2%) versus the Russell 1000 Growth Index (+0.3%). Conversely, the real estate (-0.8%), health care (-0.3%), and communication services (-0.1%) sectors closed lower.
Among the many issues overhanging the market (infrastructure, supply chain disruptions, raw material shortages, and inflation, to name a few), lawmakers moved to make the debt ceiling an issue for another day. The Senate passed a bill Thursday to extend the debt ceiling by $480 billion until Dec. 3.
The news was the basis for a large chunk of the 3.3% gain in the S&P 500 from Wednesday's intraday low to Thursday's intraday high. The benchmark index, however, saw some resistance near the underside of its 50-day moving average (4438), and risk sentiment was challenged on Friday following the release of a mixed September employment report.
September nonfarm payrolls increased by only 194,000 (Briefing.com consensus 450,000), which led some to reasonably argue that the Fed could delay its taper announcement past November. Beneath the headline number, however, were figures that supported the case for tapering sooner rather than later.
Specifically, private sector payrolls increased by 317,000 (Briefing.com consensus 385,000); the unemployment rate was 4.8% (Briefing.com consensus 5.1%), versus 5.2% in August; and average hourly earnings increased by 0.6% (Briefing.com consensus 0.4%).
The latter reflected inflation pressures stemming from supply-related constraints. Rising oil prices and interest rates further reflected inflation concerns/expectations. WTI crude briefly topped $80 per barrel for the first time since 2014 while the 10-yr yield climbed 15 basis points to 1.60%.
Macro Economic News
Nonfarm payrolls (chart) rose by 194,000 jobs month-over-month (m/m) in September, well below the Bloomberg consensus estimate of a 500,000 rise, while August's figure was upwardly-adjusted to an increase of 366,000. Excluding government hiring and firing, private sector payrolls increased by 317,000, versus the forecasted rise of 450,000, after increasing by a positively-revised 332,000 in August. Potentially helping offset the noticeable miss in the headline job growth reading, the prior two months figures were revised higher by a total of 169,000. The labor force participation rate dipped to 61.6% from August's 61.7% rate, compared to forecasts of an increase to 61.8%. The U.S. Department of Labor said notable job gains occurred in leisure and hospitality, in professional and business services, in retail trade, and in transportation and warehousing. However, employment in public education declined over the month.
The unemployment rate fell to 4.8% from August's 5.2% rate, versus expectations of a dip to 5.1%. The underemployment rate—including total unemployed and those employed part time for economic reasons, along with people who are marginally attached to the labor force—decreased to 8.5% from the prior month's 8.8% rate. Average hourly earnings rose 0.6% m/m, north of projections for a 0.4% increase, and versus August's downwardly-revised 0.4% rise. Y/Y, wages were 4.6% higher, in line with forecasts. Finally, average weekly hours rose to 34.8 from August's downwardly-revised 34.6, and versus expectations to come in at 34.7 hours.
August wholesale inventories (chart) were unrevised at the previously reported 1.2% m/m increase and at a faster pace than July's 0.6% rise. Sales fell 1.1%, compared to forecasts of a 0.9% increase, and after July's upwardly-adjusted 2.1% gain.
Treasuries were mostly lower and yields jumped this week as the markets grappled with expectations that the Fed is set to begin to rein in its extraordinary measures put in place to combat the impact of the pandemic, against the backdrop of persisting inflation pressures.
Europe Mixed After U.S. Jobs Report
European equities finished mixed with volatility remaining following the much softer-than-expected U.S. September employment report. The markets also digested an unexpected decline in German exports for August. However, the Energy sector continued to run as crude oil prices moved higher and were on track to post a seventh-straight weekly gain. The markets continued to grapple with rising global bond yields as monetary policies are expected to tighten in response to rising inflation pressures, exacerbated by the surging energy costs. The rising inflation concerns have been fostered by the intensifying global supply challenges. Bond yields in the Eurozone were mostly higher and rates in the U.K. gained solid ground, while the euro and British pound traded higher versus the U.S. dollar.
As always, it is my pleasure to bring you this weekly update. If this or anything else is causing you pause or you would like further details, please feel free to reach out to me and we can schedule some time to chat.
Justin J. Long CFP®
Diazo Wealth Group
Upcoming Economic Calendar
Source: 1. FactSet
Source: Week in perspective provided by Briefing.com. Briefing.com offers live market analysis on their web site www.Briefing.com.
The data provided is for informational purposes only and is not an endorsement of any security, mutual fund, sector, or index. The information contained here is not guaranteed as to accuracy or completeness. All economic and performance information is historical and does not guarantee future results.
The Dow Jones Industrial Average is a price-weighted index comprising 30 widely traded blue chip U.S. common stocks. The NASDAQ Composite Index is a market-value-weighted index of all common stocks listed on the NASDAQ stock exchange. The S&P 500 Index tracks the performance of 500 of the largest publicly traded companies in the United States. The MSCI Europe, Australasia, and Far East (EAFE) Index tracks the performance of publicly traded large- and mid-cap stocks of companies in those regions. The Cboe Volatility Index (VIX) shows the market’s expectation of 30-day volatility and is constructed using the implied volatilities of a wide range of S&P 500 Index options. Weekly and year-to-date figures for the VIX show percentage changes, not investment returns. The Russell 2000 Index tracks the performance of approximately 2,000 publicly traded small-cap companies in the United States. It is not possible to invest directly in an index.
The Treasury yield curve is derived from available U.S. Treasury securities trading in the market and is provided directly by the U.S. Federal Reserve. The spread measures the difference in yield between two government securities. A normal (positive) yield curve occurs when longer-term rates are higher than shorter-term rates. The opposite holds true for an inverted yield curve. Year-to-date changes in U.S. Treasury bond yields are shown in basis points (bps). One hundred basis points equals one percent.
Oil prices are represented by West Texas Intermediate (WTI) crude oil.
The G20 countries comprise a mix of the world’s largest advanced and emerging economies, representing about two-thirds of the world’s population, 85% of global gross domestic product, and over 75% of global trade.
Innovative Adviser Solutions, LLC, a registered investment adviser, dba Diazo Wealth