Weekly Market Update 9/26/2021
by Justin Long, on Sep 26, 2021
Happy Fall! Living in the desert, we don't always get to enjoy "sweater weather" right away, but this upcoming week is supposed to bring temperatures in the 80s, and that's good enough for us.
This weekend, Diazo's staff and family did a virtual walk supporting St. Jude during Childhood Cancer Awareness Month.
And now on to the recap of this week:
Weekly Market Summary
The S&P 500 was down as much 3% early in the week amid a host of concerns, but the benchmark index rallied back to end the week with a 0.5% gain. The Dow Jones Industrial Average (+0.6%), Nasdaq Composite (+0.02%), and Russell 2000 (+0.5%) also completed their own comebacks, although the Nasdaq underperformed.
The energy (+4.7%) and financials (+2.2%) sectors finished atop the standings with 4.7% and 2.2% gains, respectively. Conversely, the real estate (-1.5%) and utilities (-1.2%) sectors finished with losses over 1.0%.
The scapegoat for the early weakness was China's Evergrande: reports indicated that the property developer was on the brink of defaulting on its $300 billion in debt. Secondary issues concerned the debt ceiling and infrastructure.
The seemingly unexpected news presumably fed into the narrative that something (anything) was going to catalyze a pullback in the market, and in this case, it was fear of a financial contagion. The weakness, however, invited dip-buying efforts on the accompanying belief that concerns were overblown, which was Fed Chair Powell's thinking when he said Evergrande's issues seemed particular to China.
The Fed's policy announcement on Wednesday, while less dovish, was attributed as a source of comfort for the market. The interpretation was that monetary policy is still going to be accommodative, even when the Fed starts to taper asset purchases, which could happen as soon as November.
On a technical basis, the S&P 500's 50-day moving average (4439) appeared to be another influential driver for buying interest. This key technical level has always presented a good buying opportunity since last year, so it was encouraging for buyers to see the benchmark index reclaim this level on a closing basis.
The 10-yr yield jumped nine basis points to 1.46% amid some relatively encouraging economic data, including a four-week trend for initial and continuing claims that continued to decline. New home sales, existing home sales, housing starts, and building permits data for August each beat expectations.
Macro Economic News
New home sales rose 1.5% month-over-month (m/m) in August to an annual rate of 740,000 units, above the Bloomberg forecast calling for a rate of 715,000 units, and compared to July's upwardly-revised 729,000-unit level. The median home price jumped 20.1% y/y to $390,900. New home inventory nudged higher to a 6.1-months supply at the current sales pace from the 6.0-months level in July. Sales in the Northeast surged m/m, and also rose in the South and West, but sales in the Midwest fell. Sales in all the major regions were solidly lower compared to the same period a year ago. New home sales are based on contract signings, offering a timelier read on housing activity compared to the larger contributor of existing home sales, which are based on closings.
The markets continue to digest Wednesday's Fed monetary policy decision where the Central Bank hinted that formal details of balance sheet tapering may come in November, while there were notable changes in economic/inflation projections and rate hike expectations.
Europe sees pressure, Asia mixed as Chinese debt concerns investorsEuropean equities finished out the week mostly lower, with bond yields in the Eurozone and the U.K. continuing to climb, while the euro and British pound gave back some of yesterday's advances versus the U.S. dollar. The moves came on the heels of this week's monetary policy decisions from the Fed in the U.S. and the Bank of England that signaled the potential tapering and tightening, respectively, of the extremely loose policies put in place to combat the pandemic.
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.
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