Market & Economic Commentary

Market Commentary For the week of October 11, 2021

ECONOMIC REVIEW

  • The ISM Services Index for September increased to 61.9 compared to the consensus expectation of 59.9.
  • Non-farm payrolls for the month of September increased by 194,000, below economists’ expectations of 500,000 jobs added.
  • The unemployment rate fell to 4.8%, lower than the survey estimate of 5.1%.

INSIGHT: Economists remain optimistic on the ISM Services Index reading as last month’s report had some promising trends. The reading of the index may also have benefitted from the shift in demand by consumers from goods to services. For the second month in a row the labor market has seen weaker than expected job growth. With unemployment benefits expiring coupled with children going back to school, the scene was set for a breakout jobs number; however, the opposite happened as the reading showed the lowest job growth over the last eight months. The headline number was brought down by a decrease of -132,000 government jobs. This may be attributed to the vaccine mandates set for government employees. Despite the lackluster job gains, the unemployment rate fell below 5% for the first time since the pandemic began. However, this was driven by a drop in labor force participation, meaning more people left the workforce and therefore labor shortages could worsen.

A LOOK FORWARD

  • The Job Openings and Labor Turnover Survey (JOLTS) will be announced on Tuesday, with expectations for 10.925 million job openings, a decrease from the previous month’s openings of 10.934 million.
  • Consumer Price Index (CPI) will be released on Wednesday, the expectation is an increase of 0.3% for the month of September. The year-over-year estimate is 5.3%.
  • Producer Price Index (PPI) will be announced on Thursday, the survey estimate is a 0.6% increase for the month of September. The year-over-year estimate is 8.8%.
  • Retail Sales will be announced on Friday, expectations are calling for a -0.2% decrease compared to the previous month’s increase of +0.7%.

INSIGHT: Demand for labor continues to remain strong as companies continue to battle with attempting to ease ongoing supply constraints. Wages have been increasing at elevated rates, with the hope that after a disappointing jobs report, increasing wages may lure individuals back to the labor market. Inflation measures, while showing signs of moderating, are still above normal cycle averages. With the expectation that tapering will begin in November, the Federal Reserve is signaling that it collectively expects growth and inflation to be strong over the next year. With growth and inflation above trend, this may allow the Fed to start to withdraw some of the stimulus that has helped the economy get to this point. Producer prices continue to show inflationary pressures as input prices remain elevated, pointing to a greater probability that companies may pass these costs onto the end consumer. Increased prices may be a headwind for retail spending moving towards the holiday season.

MARKET UPDATE

Market Index Returns as of 10/08/211WTDQTDYTD1 YR3 YR5 YR
S&P 5000.83%1.99%18.23%29.29%17.14%17.50%
NASDAQ0.10%0.92%13.70%28.52%24.65%23.68%
Dow Jones Industrial Average1.27%2.71%15.17%24.57%11.94%16.38%
Russell Mid-Cap0.62%1.88%17.34%33.21%15.83%15.13%
Russell 2000 (Small Cap)-0.37%1.32%13.89%38.49%12.52%14.02%
MSCI EAFE (International)0.29%-0.47%7.84%22.38%8.62%8.88%
MSCI Emerging Markets0.85%0.33%-0.92%14.79%10.57%9.03%
Bloomberg Barclays US Agg Bond-0.78%-0.50%-2.05%-1.19%5.51%2.95%
Bloomberg Barclays High Yield Corp.-0.33%-0.33%4.19%9.60%6.95%6.35%
Bloomberg Barclays Global Agg-0.66%-0.36%-4.41%-1.23%4.48%2.20%

OBSERVATIONS

  • U.S. equities moved higher this week as indicated by the S&P 500 which was up +0.83% on the week.
  • In the U.S., smaller sized companies underperformed their larger-sized counterparts, as the Russell 2000 index decreased by -0.37% on the week.
  • International stocks as measured by the MSCI EAFE were positive on the week, up +0.29%, underperforming domestic stocks.
  • Emerging market stocks were positive on the week with the MSCI EM up +0.85%.
  • U.S. investment grade bonds were negative last week with the Bloomberg Barclays U.S. Aggregate Bond index down -0.78%.

BY THE NUMBERS

GOING UP? – Inflation as of 9/30/21, using the Consumer Price Index, will be reported this Wednesday 10/13/21. For the trailing 12 months ending 8/31/21, inflation was up +5.3%, a level not seen over the course of a calendar year in 31 years (source: Department of Labor).

SAME FOR YOU? – The total household net worth in America is up +47% in the last 4 years and is up +89% in the last 8 years. The total US household net worth was $74.8 trillion as of 6/30/13, was $96.2 trillion as of 6/30/17 and was $141.7 trillion as of 6/30/21 (source: Federal Reserve).

GOT YOUR SHOTS? – 81% of 1,000 small business owners (i.e., firms employing less than 100 workers) who were surveyed in September 2021 say they would require new hires to be vaccinated or they are considering a requirement that new hires be vaccinated (source: Digital.com).

WHAT A DAY! – 13 years ago, this week (on Monday 10/13/08), the single-best trading day for the S&P 500 in the last 71 years (since 1950) took place – a gain of +11.58% (total return) in just 1 trading day. The S&P 500 consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index with each stock’s weight in the index proportionate to its value (source: BTN Research).

Reprinted with permission from BTN. Copyright © 2021 Michael A. Higley.

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