Investment Management

Major Indexes Continue Higher

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market indexes

Major indexes closed at all-time highs last week. U.S. equities reached new record highs after strong jobs data and the Federal Reserve’s expected tapering decision. Last week, the Dow finished up 1.43%, S&P 2.03%, and Nasdaq 3.08%.

Last Week – Major Indexes Reach New Highs

The S&P 500 Index returned 2.03% last week after closing Friday at all-time highs. Equities rallied on positive economic data and strong corporate earnings. Last week earnings season reached full swing after 183 names in the S&P 500 announced quarterly results. Every S&P 500 sector except healthcare and financials posted gains. For the second straight week, the S&P was led by the consumer discretionary sector. Basic materials and technology also advanced more than 3%.

The U.S. central bank would like to see further improvements in the labor market before raising interest rates. Mainly, in the participation rate, which is still below pre-Covid levels. The Federal Reserve announced they will start tapering or reducing their asset purchases per month. When questioned about interest rates, Federal Reserve Chairman Jerome Powell stated rate hikes could happened in the back half of next year, but the Federal Reserve will remain “data dependent” in their decisions. Regarding inflation, Powell and the Federal Reserve’s certainty in inflation being transitory continues to decrease as higher prices continue. Last week wrapped up with Friday’s stronger than expected jobs report. Friday’s Non-Farm Payroll report revealed 531K new jobs added in October, with the unemployment rate falling to 4.6%.

Wages have also risen 4.9% Year-over-Year. Earlier in the week the ADP account showed private payrolls rising 571K for October, and weekly unemployment claims dropped to 269K. In other economic news, the U.S. ISM Services PMI jumped to a record 66.7 in October, while manufacturing activity slowed to 60.8 from 61.1 on stretched supply chains. U.S. Q3 productivity growth fell 5%, the biggest quarterly drop since 1981, as unit labor costs leapt 8.3%. Overseas, the Bank of England surprised by holding rates steady on labor market concerns. Crude oil fell 2% even though OPEC decided not to raise production in the face of mounting pressure from the Biden administration. China’s October PMI slipped into contraction, and Chinese tech stocks remained under pressure from regulators.

This Week

Even with a robust jobs market, high inflation, and expectations of rate increases as soon as the second half of 2022, 10-year Treasury yields fell 10 basis points last week. The Fed did add a note of caution in its statement, particularly on inflation, and investors have been well prepared for the central bank’s bond buying reduction. Ultimately it reflects an uncertain environment which may continue to drive rate volatility in the near term.

The U.S. economic calendar is light but contains important updates, with PPI on Tuesday and CPI on Wednesday. China releases their inflation data late Tuesday, with producer prices expected to advance even further from last month’s 26-year highs. Other notable events include Australia’s employment numbers, preliminary Q3 GDP from the UK, and Eurozone sentiment and industrial production figures. The week finishes up with U.S. Jolts job openings and a preliminary consumer sentiment reading for November.

This week earnings season is winding down as 20 names in the S&P 500 are expected to report. Notable names expected to report include Berkshire Hathaway Inc., The Walt Disney Co., PayPal Inc., Johnson Controls Holdings. Year-to-date index performance; Dow up 18.7%, S&P up 25.06%, and Nasdaq up 23.9% through the close on Friday.

Click here if you would like to learn more about your options and if we can assist you with your wealth management, investment, and retirement planning.

This website is for informational purposes only and is not intended to be specific advice or recommendations. For specific advice or recommendations you would need to meet directly with one of our advisers.

How High Did Earnings Lift Indexes

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earnings lift

The S&P 500 eclipsed 4600 for the first time thanks to the earnings lift. The S&P 500, Nasdaq Composite, and Dow Industrials indexes all reached record highs during the week. November kicks off with a busy and important week of data. Last week all indexes finished up. The Dow up 0.4%, S&P 1.35%, and Nasdaq 2.72%.

Last Week

U.S. equities drifted higher in the face of interest rate volatility and economic growth concerns. The S&P 500, Nasdaq Composite, and Dow Industrials indexes all reached record highs during the week. The Nasdaq managed to outperform despite disappointing earnings from Apple and Amazon. The U.S. yield curve experienced major flattening, as rate hike expectations are getting pulled forward due to high inflation. U.S. GDP grew at a 2% rate in Q3, below expectations of 2.8%. This puts additional pressure on longer-term rates as growth expectations revise lower. Consumer spending increased by only 1.6% after a 12% rise in Q2. Consumer confidence rebounded to 113.9 in October following three straight declines. The improvement was boosted by rising wages and a strong labor market. Jobless claims fell to another pandemic-era low of 281K.

The economy’s sore spot continues to be supply chain shortages, with durable goods orders dropping 0.4% in September after four straight monthly gains. New home sales surged to a 6-month high in September, but higher house prices and mortgage rates may dampen future demand. Pending home sales dropped unexpectedly. Interest rate movements were largely influenced by international developments, as the Bank of Canada struck a hawkish tone mid-week before GDP data showed likely Q3 underperformance. In Europe, ECB watchers expect a formal tapering announcement in December, as Eurozone inflation hit 4.1% in October on surging energy costs. Finally, German GDP rose 1.8% in Q3, missing expectations of 2.1% growth, and business sentiment worsened again in October on supply bottlenecks.

Earnings Review – Earnings Lift

Earnings season is in full swing with 279 of the companies in the S&P 500 having reported. 82% have beaten earnings expectations and 67% have beaten revenue expectations. The strongest results have come from Financials and Energy while Industrials have lagged. Supply chain issues have been a common
theme among companies reporting in several sectors. Mentions of “supply chain” in quarterly earnings calls were up 58% during the 2Q 2021 earnings season versus 4Q 2020. The current season is on track to be the highest in the 21st century. The largest companies in the S&P 500 reported last week. Tesla, Microsoft, and Alphabet all had stellar results providing an earnings lift. Amazon, Apple, and Facebook struggled in the prior quarter. Mark Zuckerberg doubled down on efforts to promote the metaverse. He also announced that Facebook, Inc. is changing its name to Meta Platforms, Inc., in December.

Week Ahead

November kicks off with a busy and important week of data. The FOMC meets mid-week, where the stage appears to be set for a long-anticipated tapering announcement. There is much to weigh, with a robust economy being checked by supply constraints. Inflation is exceeding its target by a wide margin. The improving but tight labor market that has yet to reach full employment. There are additional central bank policy updates from Australia and the UK on the calendar. Speaking of jobs, NFP lands Friday, preceded by the ADP report two days prior. Crude oil prices have stabilized the past few weeks, but remain near 7-year highs. Other events of note include employment numbers and PMI from Canada, and Eurozone retail sales and PMIs.

This week will include earnings results from oil stocks BP and Marathon Petroleum. Also reporting are video game makers Activision Blizzard, Electronic Arts, and Take-Two Interactive. News from the November Fed meeting is out on Wednesday. Year-to-date index performance; Dow up 17.03%, S&P up 22.61%, and Nasdaq up 20.25% through the close on Friday.

Click here if you would like to learn more about your options and if we can assist you with your wealth management, investment, and retirement planning.

This website is for informational purposes only and is not intended to be specific advice or recommendations. For specific advice or recommendations you would need to meet directly with one of our advisers.