Weekly Market Update 11/13/2021
by Justin Long, on Nov 13, 2021
This week Diazo kicked off the holiday season with a shared client appreciation event at Hidden Cinema with our friends at Quantum Risk Management Group and The Mullin Group - at Berkshire Hathaway HomeServices.
Attendees loved the rooftop garden movie theater in Downtown Las Vegas and its unique experience for the whole family. We gathered together in outdoor beanbag chairs and picnic blankets with drinks, popcorn, and candy to view a holiday classic, Christmas Vacation. It was a great time!
A big thank you to everyone who helped to make the event a success!
And now on to the recap of this week:
Weekly Market Summary
Week in Review: Winning streak snapped
The stock market's five-week winning streak was put to an end this week, as well as the S&P 500's eight-session winning streak and the Nasdaq Composite's 11-session winning streak. Both declined 0.3% and 0.7%, respectively, while the Dow Jones Industrial Average fell 0.6% and the Russell 2000 fell 1.0%.
The consumer discretionary (-3.2%) and energy (-1.7%) sectors were by far the weakest performers with 3.2% and 1.7% declines, respectively. The former was pressured by a 15% decline in Tesla (TSLA), as CEO Elon Musk started to sell shares in accordance with a Twitter poll that indicated he sell 10% of his stake.
Five of the 11 S&P 500 sectors, however, closed higher. The materials sector was impressive with a 2.5% gain, although no other sector rose at least 0.7%.
The impetus for the setback at the index level was profit-taking interest and a sharp rise in Treasury yields, which were catalyzed by hawkish Fed expectations for next year following a hotter-than-expected Consumer Price Index for October.
Specifically, total CPI rose 0.9% m/m (Briefing.com consensus +0.6%) and was up 6.2% yr/yr -- the largest 12-month increase since November 1990. Core CPI, which excludes food and energy, rose 0.6% m/m (Briefing.com consensus +0.4%) and was up 4.6% yr/yr.
As of 4:05 p.m. ET Friday, the probability for a rate hike in June 2022 was 69.1%, versus 50.9% last week, according to theCME Fed Watch Tool. The probability for a second rate hike next November increased to 64.9% from 44.7% last week.
The 2-yr yield rose 12 basis points to 0.52%, and the 10-yr yield rose 13 basis points to 1.58%. The U.S. Dollar Index rose 0.8% to 95.09.
Walt Disney (DIS) and Rivian (RIVN) were two other story stocks. Disney shares dropped 8% following its earnings report. RIVN finished 66% above its IPO price, bringing the EV-maker's market capitalization over $110 billion.
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Macro Economic News
The November preliminary University of Michigan Consumer Sentiment Index (chart) decreased to 66.8, versus the Bloomberg estimate calling for a modest rise to 72.5 from October's 71.7 reading. The index hit a ten-year low as both the current conditions and the expectations portions of the index deteriorated. The 1-year inflation forecast rose to 4.9% from October's 4.8% rate, matching forecasts, and the 5-10 year inflation forecast remained at the prior month's 2.9% level.
The University of Michigan said, "Consumer sentiment fell in early November to its lowest level in a decade due to an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation."
As labor shortage remains a drag on business sentiment, the Labor Department's Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, showed a retreat to 10.44 million jobs available to be filled in September, from August's upwardly-revised 10.63 million rate. However, the consensus estimate called for a 10.30 million level. The report showed the hiring rate remained at August's 4.4%, and separations rose to 4.2% from the prior month's 4.1% pace. The quit rate increased to 3.0% from August's 2.9% rate as a record 4.4 million quit their jobs, according to Bloomberg.
Treasuries dipped after the bond markets were closed yesterday for the Veterans Day holiday. The yield on the 2-year note was little changed at 0.51%, while the yield on the 10-year note ticked 2 basis point (bp) higher to 1.58%, and the 30-year bond rate rose 4 bps to 1.95%.
Treasury yields have been volatile and have moved higher in the wake of this week's hotter-than-expected October wholesale and consumer price inflation figures, with the latter registering the highest y/y pace in over 30 years. Also, the choppiness in the bond markets has come on the heels of last week's Fed's monetary policy decision, where it announced that it will begin to taper its monthly asset purchases by $15.0 billion per month.
Stocks Post Weekly Decline, Snapping String of Record Highs
U.S. stocks finished lower on the week, after racking up a string of record highs as of late. As a strong Q3 earnings season headed toward the finish line, investors appeared to take the opportunity to harvest some of the recent gains. The markets remained hyper-focused on inflation and the implications regarding the path of monetary policies, and October reports came in well above expectations, headlined by a more than 30-year high in consumer price inflation. Treasury yields moved higher across the yield curve with a noticeable rise on the short end, and the U.S. dollar also gained ground. Sector performance was mixed, with cyclically-natured Materials a standout winner for the week, while Consumer Discretionary saw noticeable pressure and Energy stocks slumped as crude oil prices were choppy as oil inventories continued to rise. Gold prices rose for the second-straight week following the inflation readings and as the markets wrestled with if the Fed may have to expedite its plan to taper asset purchases and then begin to lift interest rates.
Next week, along with the major retailers putting the finishing touches on Q3 earnings season, the economic calendar will be headlined by the October retail sales report, which is projected to continue to show solid growth. Housing data will also be in focus, courtesy of the releases of the NAHB Housing Market Index, along with housing starts and building permits. Some timely reads on regional manufacturing activity will hit the tape, with November reads out of New York and Philadelphia. Other releases that could garner some attention include, the Fed's industrial production and capacity utilization report, the Leading Economic Index, initial jobless claims for the week ended November 13, and business inventories. Given the inflation outlook and the ensuing Fed uncertainty, next week's roster of speeches from Fed officials could also compete for market attention.
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