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Weekly Market Update 10/16/2021

by Justin Long, on Oct 16, 2021

Hockey season has arrived in the desert! As discussed last week, my family and I were in attendance for the home opener, and Las Vegas, you did not disappoint! The Golden Knights ultimately defeated the new Seattle Kraken, 4-3, but it was a really exciting game start-to-finish.

T-mobile Arena Jumbotron with Welcome to Opening Knight on screen

And now on to the recap of this week:

Weekly Market Summary

 Market absorbs inflation pressures and rallies amid positive earnings news, economic data

The stock market had a great second half of the week, bolstered by better-than-expected earnings reports, relatively encouraging economic data, and improving technical factors. The Nasdaq Composite (+2.2%) led the way with a 2.2% gain, followed by the S&P 500 (+1.8%), Dow Jones Industrial Average (+1.6%), and Russell 2000 (+1.5%) with decent gains.  

Ten of the 11 S&P 500 sectors finished the week in positive territory. The consumer discretionary (+3.6%), materials (+3.6%), and real estate (+3.5%) sectors each gained around 3.5%, while the communication services sector (-0.4%) was the lone holdout.

The start of the Q3 earnings-reporting season went well with most companies (predominately banks) exceeding expectations. In addition, there was a surprising 0.7% m/m increase in total retail sales for September (Briefing.com consensus -0.3%), and weekly initial claims (293,000) fell to their lowest level since the start of the pandemic.

The good news helped the market overlook persistent inflation pressures indicated in the Consumer Price Index and Producer Price Index reports for September, higher oil prices ($82.26/bbl, +2.86, +3.6%), and ongoing supply chain challenges highlighted by companies and reports. 

More accurately, though, the stock market took its inflation cue from the Treasury market, which signaled a renewed tolerance for the peak-inflation narrative. This view stemmed from core CPI and core PPI coming in softer than expected on a month-over-month basis. The 10-yr yield decreased three basis points to 1.58%. 

Technical factors helped, too. The S&P 500 closed above its 50-day moving average on Thursday, and the positive-minded price action carried over into Friday. This follow-through from buyers was viewed as a good indicator among traders. 

Separately, the FOMC Minutes from the September meeting showed that asset purchases would be reduced on a monthly basis by $15 billion ($10 bln in Treasury securities and $5 bln in agency MBS) if begun later this year and lasting until the middle of 2022.

Macro Economic News

Retail sales top forecasts, October consumer sentiment unexpectedly dips

Advance retail sales (chart)for September rose by 0.7% month-over-month (m/m), versus the Bloomberg consensus forecast of a 0.2% decrease, and compared to August's upwardly-adjusted 0.9% rise. Last month's sales ex-autos gained 0.8% m/m, compared to expectations of a 0.5% gain and as August's figure was revised higher to a 2.0% increase. Sales ex-autos and gas were up 0.7% m/m, versus estimates of a 0.4% rise, while August's reading was adjusted upward to a 2.1% gain. The control group, a figure used to calculate GDP, advanced 0.8% m/m, versus projections of a 0.5% increase, and following August's favorably revised 2.6% jump.

Sales were higher m/m across most categories led by a strong gain in sporting goods, hobby, musical instrument, and book stores, while sales of clothing and accessories, autos, food & beverages, and general merchandise were also noticeable positive contributors. Sales at nonstore retailers—which includes online activity—also gained ground. Sales across all categories were sharply higher y/y, with food services & drinking places, gasoline stations, and clothing & accessories stores seeing the highest gains.  

The October preliminary University of Michigan Consumer Sentiment Index (chart) decreased to 71.4, versus estimates calling for a rise to 73.1 from September's 72.8 reading. The index posted the second-lowest reading since 2011 as both the current conditions and the expectations portions of the index. The 1-year inflation forecast rose to 4.8% from September's 4.6% rate, versus forecasts to tick higher to 4.7%, but the 5-10 year inflation forecast declined to 2.8% from the prior month's 3.0% level.

The University of Michigan said, "the Delta variant, supply chain shortages, and reduced labor force participation rates will continue to dim the pace of consumer spending into 2022," while pointing out that another, less tangible factor has contributed to the slump in optimism: confidence in government economic policies has significantly declined during the past six months.

Stocks Continue October Rebound

U.S. stocks continued to climb in October, posting a second-straight weekly gain to chip away at the solid downturn registered in September. A solid start of Q3 earnings season, courtesy of strong results from the Financials sector, and some upbeat economic data seemed to help tamp-down flared-up stagflation concerns and propel stocks back to shouting distance of record high territory. The markets shrugged off still-elevated inflation pressures as September consumer, producer, and import prices all remained sharply higher, but the latter two reads did come in cooler than expected.

The recovery in the labor markets appeared to be continuing as jobless claims fell below the 300,000 mark for the first time since March 2020. Friday's second-straight month of stronger-than-expected retail sales for September added to the upbeat economic data points. The markets also took in stride the minutes from the Fed's September monetary policy meeting, which revealed that November 3 will likely be the announcement date for the commencement of its taper campaign that could begin mid-November or mid-December with a targeted mid-2022 end date.

The Treasury yield curve flattened noticeably as the short end saw rates jump, while the yields on the 10-year note and 30-year bond slid. The U.S. dollar dipped after a recent rally took the greenback to levels not seen in more than a year. Crude oil prices continued to surge, rising for the eighth-straight week, and gold turned in its third-consecutive weekly gain.

As such, most S&P 500 sectors were higher, led by Real Estate, Materials, Consumer Discretionary, Information Technology and Industrials. Financials did post a gain but as has been typical the past several quarters they showed a subdued and mixed reaction to the earnings results. Communications Services was the lone sector to see red figures and the Energy sector took a break from its recent outperformance but still moved comfortably above the flatline.  

Next week's economic docket will likely yield somewhat to the ramping up of Q3 earnings season, but is still poised to deliver some data points that could move the markets. Housing will be prominent, with the releases of the NAHB's October homebuilder sentiment report, September housing starts and building permits, and existing home sales for last month. In preparation for the November 3 monetary policy meeting, the Fed will release its industrial production and capacity utilization figures for September as well as its Beige Book report—an anecdotal look at business activity across the nation's Fed districts. Other releases that deserve a mention include, initial jobless claims for the week ended October 16, the September Index of Leading Economic Indicators, and Markit's preliminary October Manufacturing and Services PMIs. Before going dark the week before the early-November monetary policy meeting, a host of Fedspeak will hit the wires, headlined by the participation in a panel discussion by Fed Chairman Jerome Powell.   

Next week's international economic calendar is also poised to bring some reports that may contend for attention, highlighted by preliminary October Manufacturing and Services PMIs out of Australia, Japan, the Eurozone and the U.K. Other reports that could foster market responses include: China—Q3 GDP, retail sales, and industrial production. Japan—trade balance. Eurozone—the final September Consumer Price Index. U.K.—inflation figures and retail sales.    

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®
Founder/Lead Advisor
Diazo Wealth Group
702-745-1800 Direct
702-278-6560 Cell

Upcoming Economic Calendar

Real Time Economic Calendar provided by Investing.com.

Source: 1. FactSet

Source: Week in perspective provided by Briefing.com. Briefing.com offers live market analysis on their web site www.Briefing.com.

Source: https://www.schwab.com/resource-center/insights/content/schwab-market-update 

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


Topics:FiduciaryFinancial PlanningMarkets

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