Weekly Market Update 10/24/2021
by Justin Long, on Oct 24, 2021
This upcoming Tuesday, Diazo is hosting our Quarterly Market Review! We are changing up the format a bit this time around, so if you are able to attend (or would like a recording sent to you afterwards), you can sign up at this link: https://info.diazo.com/quarterly-review-webinar-10-26-2021
We hope to see you there!
And now on to the recap of this week:
Weekly Market Summary
Week in Review: S&P 500 and Dow march to record highs
The stock market powered through a host of negative supply-chain commentary, with investors bidding up growth and value stocks amid a fear of missing out on further gains. The S&P 500 (+1.6%) and Dow Jones Industrial Average (+1.1%) set intraday and closing record highs.
The Nasdaq Composite (+1.3%) and Russell 2000 (+1.1%) also performed well with gains over 1.0%.
Granted, most companies did beat EPS estimates, which was cited as a source of fuel for the value stocks. Remarkably, shares of companies that highlighted supply chain issues did suffer as a result, but the broader stock market looked past those concerns.
The list of companies that mentioned supply chain/pricing issues included Procter & Gamble (PG), Intel (INTC), Honeywell (HON), and Snap (SNAP) -- for its ad partners, at least. SNAP also attributed Apple's (AAPL) privacy changes for its disappointing results/guidance.
Nevertheless, the buy-the-dip mantra that started earlier this month persisted this week. Ten of the 11 S&P 500 sectors closed higher, led by the real estate (+3.2%), health care (+2.9%), financials (+2.8%), and utilities (+2.4%) sectors with gains over 2.0%.
The communication services sector (-0.6%) was the only sector that ended the week lower, predominately due to Snap's disappointing news negatively impacting Alphabet (GOOG) and Facebook (FB) on Friday.
In the Treasury market, maturities across the curve sold off amid expectations for the Fed to hike rates sooner than expected amid persisting inflation pressures. The latter was further manifested in higher oil prices ($83.77/bbl, +1.51, +1.8%).
The 2-yr yield rose seven basis points to 0.47%, and the 10-yr yield rose eight basis points to 1.66%. The U.S. Dollar Index fell 0.3% to 93.62.
|INDEX||STARTED WEEK||ENDED WEEK||CHANGE||% CHANGE||YTD %|
Macro Economic News
The preliminary Markit U.S. Manufacturing PMI Index for October declined to 59.2 from September's unrevised 60.7 figure but remained solidly in expansion territory as denoted by a reading above 50. Estimates called for the index to dip to 60.5. The preliminary Markit U.S. Services PMI Index showed growth (above 50) for the key U.S. sector accelerated more than expected, rising to 58.2 from August's 54.9 figure and compared to forecasts of a rise to 55.2.
When looking at the composite index of output from both sectors, Markit said, "Stronger sales placed further pressure on business capacity during October. The level of outstanding business rose at a series record pace, with respondents linking the latest rise with supply issues and a lack of staff." Markit also mentioned that companies stepped up their hiring efforts in October as employment increased at the fastest pace since June.
Treasuries were mixed, as the yield on the 2-year note was up 3 basis points (bps) at 0.47%, while the yield on the 10-year note was down 3 bps at 1.65%, and the 30-year bond rate was 4 bps lower at 2.09%.
Despite today's action, the Treasury yield curve has seen some steepening as of late, and Schwab's Chief Fixed Income Strategist, Kathy Jones notes in her latest article, Bond Market Blues: High Inflation and Low Yields, that coming into the fourth quarter, we were expecting a rise in yields and volatility. She points out how bond yields appeared to be too low in the face of rising inflation and investors too complacent about the potential for tighter monetary policy.
She adds that we continue to suggest keeping average duration low due to our expectation for yields to push higher as we see the potential for 10-year Treasury yields to move up to 1.75% this year and above 2.00% in the first half of next year. Kathy also discusses how over the next six to twelve months, we suggest investors look for opportunities to extend duration if yields move higher, as anticipated. "The early stages of rising yield cycles are usually characterized by rising longer-term rates and steepening yield curves. However, once the prospect of tighter policy is on the horizon, long-term yields have tended to peak well before the initial rate hike of the cycle," she adds.
Stocks Continue October Rebound
October continues to be an upbeat month for the U.S. equity markets, as the major indices registered a third-straight week of gains to further recover from the solid downturn in September. Q3 earnings season shifted into a high gear, with a number of Dow components posting solid quarterly results, which helped propel the S&P 500 and the Dow back into record high territory.
The upbeat sentiment came despite a mixed bag of economic reports, with jobless claims moderating further to a level not seen since the beginning of the pandemic and still-robust manufacturing and services activity coming up against a disappointing industrial production report. Housing was in focus for the week, with homebuilder sentiment unexpectedly improving and existing home sales coming in stronger than forecasts, while housing starts and building permits fell short of expectations and mortgage applications dropped, courtesy of a rise in interest rates.
Meanwhile, the Fed's Beige Book noted that economic growth continued at a moderate to modest pace, but most Districts reported significantly elevated prices, with supply-chain issues contributing to rising input costs.
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, further pulling back from a recent rally that took the greenback to levels not seen in more than a year. Crude oil prices remained in rally mode, rising for the ninth-straight week, and gold posted in its fourth-consecutive weekly gain.
Most S&P 500 sectors were higher, led by Real Estate, Health Care, Financials and Utilities, while Communications Services was the lone sector to see red figures.
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