Weekly Market Update 9/10/2021
by Justin Long, on Sep 10, 2021
I know this is earlier than I usually send out the weekly update, but out of respect for tomorrow being the 20th anniversary of the September 11th attacks, it felt odd to send it at my usual time.
In the last 20 years I have never come across anyone who didn't know where they were on the day the world stopped turning. I, myself, was working out in Florida and listening to the local radio show. When they announced that Flight 11 had hit the North Tower of the World Trade Center, it was hard to take in coming from a source that normally was built to shock in a different way. Seventeen minutes later when Flight 175 struck the South Tower, the tone shifted as we understood the gravity of what was unfolding.
It's hard to believe that 20 years is between us now and that fateful day. So much has changed in the two decades that have passed. But one thing that will always remain – we will never forget.
And now on to the recap of this week:
Weekly Market Summary
Sellers take control in shortened week
The stock market had a tough four-day week, with the S&P 500 losing 1.7% and closing lower in each session as buyers appeared exhausted. The Dow Jones Industrial Average (-2.2%) and the Russell 2000 (-2.8%) both declined more than 2.0% while the Nasdaq Composite declined 1.6%.
All 11 S&P 500 sectors finished the week in negative territory, led lower by the real estate (-3.9%), health care (-2.7%), and industrials (-2.5%) sectors with losses over 2.0%. The top-weighted information technology sector declined 1.8%, while the consumer discretionary sector (-0.3%) outperformed on a relative basis.
No one event dragged the market lower. Instead, it was a confluence of negative-sounding news that pressured risk sentiment amid speculation for a larger pullback.
Macro Economic News
On the macro-related front:
- Goldman Sachs reduced its Q4 and 2021 GDP forecasts
- The enhanced unemployment benefits expired
- Axios reported that Senator Manchin (D-WV) would only support $1.5 trillion for any human infrastructure plan
- The ECB said it could start reducing its emergency asset purchases by a moderate pace
- Treasury Secretary Yellen warned about the economic consequences if lawmakers don't resolve the debt-ceiling issue
- Both the $24 bln 30-year bond and the $38 bln 10-yr note auctions saw decent demand, reflecting lingering growth concerns
- Cryptocurrencies sold off, remind some investors about reducing their risk exposure
On the corporate front:
- A court ruled that Apple (AAPL) must give developers the ability to create their own payment options
- Johnson & Johnson (JNJ), Merck (MRK), and Amgen (AMGN) were downgraded to Equal-Weight from Overweight at Morgan Stanley
- The airlines lowered their Q3 outlooks, as did Sherwin-Williams (SHW) because of raw material issues.
The 10-yr yield increased two basis points to 1.34% amid some hot PPI data for August and continued improvement in the weekly initial and continuing claims report.
Wholesale Price Inflation Comes in Higher Than Anticipated
The Producer Price Index (PPI) (chart),showed prices at the wholesale level in August rose 0.7% month-over-month (m/m), above the Bloomberg consensus estimate calling for a 0.6% gain, but below July's 1.0% increase. The core rate, which excludes food and energy, gained 0.6% m/m, in line with estimates and south of the prior month's 1.0% gain. Y/Y, the headline rate was 8.3% higher, above projections of an 8.2% increase and compared to July's 7.8% gain. The core PPI increased 6.7% y/y last month, topping estimates calling for a 6.6% rise, following July's 6.2% increase.
July wholesale inventories (chart) were unrevised at a 0.6% m/m gain, matching estimates and compared to June's 1.2% increase. Sales rose 2.0% after June's upwardly-adjusted 2.3% gain.
Treasuries were lower, as the yield on the 2-year note was flat at 0.22%, while the yields on the 10-year note and the 30-year bond gained 4 basis points to 1.34% and 1.94%, respectively. The U.S. dollar modestly added to a gain it has seen this week.
The markets continue to grapple with when the Fed will begin to taper its monthly asset purchases as inflation has been running hot and employment data has been mixed. Schwab's Chief Fixed Income Strategist Kathy Jones and Senior Fixed Income Analyst, Christina Shaffer, note in their commentary, Fed Tapering: Will it Be Different This Time?, that although the prospect of the Federal Reserve tapering its bond purchases has unsettled markets in the past, we expect it to be more orderly this time around.
Treasury yields have nudged higher and the U.S. dollar has held onto a rally that began in mid-June
Are there reasons to be positive?
- Despite the potentially temporary soft patch and weak seasonality (September has been particularly challenging for stock-market returns), our economic and investment outlook remains positive.
- Consumers are able to continue to drive above-average consumption growth (the main engine of the U.S. economy), supported by rising wages, an improving labor market, an elevated personal savings rate, and record net worth boosted by fast-rising house prices.
- Credit conditions remain strong and interest rates low, and the Fed is unlikely to pivot to a restrictive monetary policy any time soon. As Chair Powell outlined last month in Jackson Hole, the decision to taper the bank's bond purchases is distinct from a future decision to hike rates.
- Businesses will need to restock inventories, and capital spending should reaccelerate. And likely so will stock repurchases, as companies put the record levels of cash into use. A growing economy and improvements in productivity suggest corporate profits should continue to rise.
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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