Corporate Earnings On Deck – Market Brief April 18, 2022

corporate earnings

Investors seek value as rising rates hurt growth stocks. U.S. equity performance was mixed in a shortened week as inflation and interest rates weighed on sentiment. Corporate earnings season accelerates, with Q1 reports due from companies in several key industry groups, including banks, trucking, airlines, metals, and technology. The Dow down 0.78%, S&P down 2.11%, and Nasdaq down 2.62%.

Last Week

The S&P 500 declined for a second straight week as the market offered little optimism to investors with climbing inflation and mixed Q2 earnings reports. Materials were the best performing sector in the S&P 500 during the week while Information Technology lagged. The yield on the ten-year treasury bill climbed to 2.83%, over 100 basis points higher than a year ago. This dampened growth stocks during the week. Oil spiked over $10/barrel over three days as peace talks between Russia and Ukraine stalled. Energy stocks beat the market last week. J.P. Morgan kicked off the 2Q22 corporate earnings season with quarterly profit that was 42% lower than a year ago.

In economic news last week, key data included Retail Sales, the Consumer Price Index (CPI) and University of Michigan Consumer Sentiment. Retail Sales rose 0.5% in March, slightly below the consensus forecast and down from the previous month. Sales at gas stations accounted for much of the increase, with an 8.9% rise from the prior month. Not surprising given the jump in oil prices. The Consumer Price Index rose 8.5%, its highest rate since 1981, up from 7.9% in February. The sharp increase reflected an 11% jump in energy prices. Some economists believe that recent high inflation may be the peak. However, the March data is far above the Fed’s long-term 2% target and moving in the wrong direction. University of Michigan Consumer Sentiment rose to a better-than-expected 65.7 in April, up from 59.4 in February.

Week Ahead – Corporate Earnings

The stock market opens today with corporate earnings season ramping up. Banks and financial companies will lead off, including Bank of America and American Express, as well as many regional banks. Other companies reporting this week include IBM, Halliburton, Lockheed Martin, Johnson & Johnson, Tesla, Alcoa, Procter & Gamble, AT&T, Verizon, Netflix, American Airlines, and United Airlines. The wide range of reporting companies will help give economists a sense of how different sectors are weathering inflation, rising interest rates, and the impact of the war in Ukraine and economic sanctions on Russia.

Key economic data due this week include Housing Starts, Existing Home Sales, and Leading Economic Indicators (LEI). For Housing Starts, economists expect March to be down from February. For Existing Home Sales, the consensus also calls for March to be down from a month earlier. While the housing market has been red-hot for many years, it has started to cool in recent months. Housing could face further pressure from aggressive Fed rate hikes. Economists see LEI coming in at 0.3% for March, in line with the February rate.

Year-to-date index performance; Dow down 5.2%, S&P down 7.8%, and Nasdaq down 14.7% 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.

Erie CO Financial Advisor; investments, wealth management, retirement income planning; Boulder, Broomfield, Louisville, Niwot, Windsor, Berthoud CO

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.

Conflict Overseas – Market Brief March 28, 2022

conflict

Stocks recorded their first back-to-back weekly gains since late January / early February. U.S. equities rose modestly, as strong economic data was checked by geopolitical tensions. Investors’ attention will be focused this week on inflation and jobs data. The Fed is betting on a soft landing for the economy, but the outcome is far from certain.

Last Week – Conflict Overseas Reaches 2nd Month

Last week, the Dow Jones Industrial average was up 0.3%. The S&P 500 was up 1.8%, and the Nasdaq Composite rose 2%. Year-to-date, the numbers are still negative. In housing news, the average 30-year fixed mortgage rate reached a 3-year high of 4.5%. This is boxing out some buyers as new and pending home sales fell in February. Inventory remains limited, keeping asking prices high.

Nonfarm payrolls are expecting to be 450,000 for March, a drop from the 678,000 in February. The unemployment rate is expecting to be 3.7% for February. A slight tightening from the 3.8% the month prior. The consensus sees a slight rise in personal income to 0.5% for February. Personal spending is expecting to show a sharp slowdown at 0.6% in February, versus 2.1% in January. This goes along with inflationary pressures that consumers are feeling, especially elevated gas prices at the pumps.

Federal Reserve Chairman Jerome Powell stated the Federal Reserve will be more aggressive with monetary policy. Key economic data out last week included: New home sales, durable goods orders, and UMich Consumer Sentiment. One significant weekly data point was initial jobless claims which posted at 187,000 for the week ending March 19, its lowest number in 50 years, and a sharp decline versus the week prior of 215,000.

New home sales came in at 772,000 SAAR for February versus a consensus of 825,000 and compared to a revised 788,000 SAAR in January. The final UMich Consumer Sentiment number posted at 59.4 for March, slightly lower than the 59.7 expected. Consumer sentiment of course has pressure from volatile oil prices and the conflict in Ukraine.

The Week Ahead

Key economic data releasing this week include nonfarm payrolls, the unemployment rate, personal income and spending, and Real GDP. In this time of inflation and geopolitical uncertainty, all of this data matters. The Federal Reserve is carefully considering each data point to help decipher the health of the overall economy. The labor market remained strong, with initial jobless claims falling to the lowest level since September 1969.

As the war in Ukraine enters its second month, and with negotiations seemingly at a stalemate, investors’ attention will focus on inflation and jobs data. The Fed is betting on a soft landing for the economy, but the outcome is far from certain. The labor market is tight. The Fed’s preferred inflation measurement, the Core PCE Price Index, is the main event on Thursday, while ISM Manufacturing PMI joins a busy end of the week.

In Europe, Germany will publish preliminary CPI for March along with monthly retail sales and consumer confidence. These numbers have turned pessimistic given the Russia-Ukraine conflict. Year-to-date index performance; Dow down 4.06%, S&P down 4.68%, and Nasdaq down 9.43% 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.

Erie CO Financial Advisor; investments, wealth management, retirement income planning; Boulder, Broomfield, Louisville, Niwot, Windsor, Berthoud CO

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.

Energy Prices on the Rise – Market Brief March 14, 2022

U.S. equities attempted to rally at the end of last week as Russian President Putin claimed some progress in talks with Ukraine. Indexes finished near the lows, extending the 2022 losing streak. Months of anticipation will reveal in the Fed’s interest rate decision this week, the beginning of rate hikes. Surging energy prices and inflation is largely attributable to supply-side challenges, yet the Fed believes the current policy is too loose. The S&P 500 and Nasdaq Composite indexes fell more than 3% last week.

Last Week – Energy Prices

The stock market losing streak continued. The DJIA was down 1.99%, while the S&P 500 was off 2.88%, and the Nasdaq Composite declined 3.53% for the week. On Tuesday, the NFIB small business optimism index for February slipped to 95.7. Lower than January’s reading of 97.1. Small business owners are feeling the impacts of wage inflation and rising fuel costs. On Wednesday, weekly mortgage applications rose 8.5% overall. Both originations and refinancing’s were up in high single digits among rising rates.

energy prices

Weekly initial unemployment claims moved higher on Thursday, to 227,000 from the pandemic low of 216,000 the prior week. The big inflation data last week was the February consumer price index (CPI) report. The all-items CPI rose 7.9% annually, the highest in 40 years. Energy prices soared as the war in Europe continues. The core index, which excludes food and fuel, rose 0.5% monthly and 6.4% annually. The Russian invasion dismissed belief of cooling inflation. The War in Europe has spiked petroleum prices around the world. Wrapping the data week on Friday, University of Michigan consumer sentiment for March slipped below 60 to 59.7. Consumer sentiment reached 10-year lows. On top of inflation concerns, the war in Europe is adding to general geopolitical anxiety.

Week Ahead

The markets may need the Luck of the Irish on Thursday to snap the losing streak. The February Producer Price Index estimates to rise 1.0% month-over-month and 10% annually. The core PPI estimate to rise 0.6% monthly and 8.3% annually. Wednesday retail sales report, expected to rise 0.5% for February after the surprising 3.8% gain for January. Inflation is causing consumers to spend more for less and potentially cutting into savings. Most experts agree the Fed’s hiking path is likely to be slower than previously expected considering the war in Europe. The current reports believe a 0.25% rise in interest rates on Wednesday.

The NAHB housing market index estimate for March is the low 80s, in line with February’s 82. On Thursday, February housing starts are forecast at a 1.700 million SAAR (seasonally adjusted). This would be an improvement from the 1.638 million SAAR for January. Capacity utilization is forecast to edge higher to 77.8% from 77.6% for January. Factories continue to run all-out to address the supply-chain crisis. On Friday, existing home sales report estimated to come in at a 6.17 million SAAR for February. This would be a decline from a 6.50 million SAAR for January.

Year-to-date index performance; Dow down 9.3%, S&P down 11.8%, and Nasdaq down 17.9% 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.

Financial Advisor Erie CO focus on investment and wealth management, retirement planning; Boulder, Louisville, Niwot, Lafayette, Windsor, Berthoud, CO

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.

Invasion Continues – Market Brief March 7, 2022

The Russian invasion of Ukraine extended the stock market’s losing streak last week. The invasion intensified, sending global commodity prices soaring and sustaining volatility. Uncertainty is mounting. With the spike in commodity prices, global central banks’ mission to curtail inflation becomes more difficult. For the week ending Friday, Nasdaq fell 2.75%, S&P 500 down 1.24%, and the Dow Jones down 1.23%.

The last two weeks, the world changed. As we watch the horrifying events unfold in Ukraine and the political and economic fallout, it’s hard not to worry. One thing that can help when you feel worried is to identify and take small steps to create positive results. For example:

  • – review your portfolio, we can look for ways to diversify your investments if needed to help reduce risk and renew your confidence that we continue on the path to help achieve your long-term goals
  • – don’t forget about other money deadlines, like your tax preparation for filing this year
  • – take time to recognize signs of burnout and focus on your personal wellbeing

Last Week – Invasion Continues

With geopolitical tensions rising, investors ignored highly positive economic data in the U.S. last week. The S&P 500 hit an all-time closing high on the first day of trading this year. Since then, the index reversed and is down 8.94% year-to-date as of last Friday. Crude oil closed at $115.68 per barrel on Friday, rising 26.30% for the week. Crude hasn’t seen per barrel prices of $100 or more since 2014.

The jobs report released last week showed the U.S. added 678,000 jobs in February, which was well above expectations. The unemployment rate fell from 4.0% in January to 3.8% in February. Slightly above the 3.5% rate from February 2020. Both readings of the February ISM Manufacturing and Non-Manufacturing Indexes continued to indicate expansion. Supply chain issues and labor shortages remain a headwind for both. However, this comes amid strong demand as the economy continues to reopen.

On Wednesday, Federal Reserve Chairman Jerome Powell confirmed rate hikes were coming, while acknowledging uncertainty related to Ukraine. He also said he would support a quarter-percentage-point rate hike at the Fed’s upcoming meeting on March 15-16. This is the Fed’s first rate increase since 2018. Powell also said the Fed will tread carefully given geopolitical turmoil and its uncertain impact on the U.S. economy. The comments all but end speculation that the Fed would raise interest rates by 0.50% at the March meeting. Larger rate hike are not ruled out for future meetings if inflation doesn’t come down from current four-decade highs.

Week Ahead

Uncertainty is only mounting. The spike in commodity prices is making the global central banks’ mission to curtail inflation increasingly more difficult. Inflation data will dominate investor headlines this week. On Tuesday, the NFIB small business optimism index for February is forecast to hold in the high 90’s range. Small business sentiment, already hurt by wage inflation, could worsen as the Ukrainian invasion further pushes up gas prices. On Wednesday, weekly mortgage applications are expected to extend recent declines. Largely thanks to the February surge past 2.0% in the 10-year Treasury yield.

In addition to weekly initial unemployment claims, Thursday brings the consumer price index report for February. The all-items CPI is forecast to rise 0.7% on a month-over-month basis and 7.9% year-over-year. Wrapping the data week on Friday is University of Michigan consumer sentiment. The reading is expected to drop to 61.7 for March from 62.8 for February. The war in Europe adds to consumer worries. Year-to-date, the Dow is down 7.5%; the S&P 500 is off 9.2%. The Nasdaq is now down 14.9% year to date.

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.

Erie CO Financial Advisor; investments, wealth management, retirement income planning; Boulder, Broomfield, Louisville, Niwot, Windsor, Berthoud CO

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.

Starting Now – Market Brief February 28, 2022

Starting Now

Starting now, when is the best time to plant a tree? According to the old Chinese proverb, the best time was 20 years ago, but the second-best time is now. There’s such great wisdom in that proverb when it comes to your financial strategy, especially when you consider the bumpy start the economy has taken so far this year. Volatility can cause anxiety. Maybe you’re worried you aren’t on track for the retirement you envision. Maybe you think it’s too late to start. I’m here to tell you that it’s not. 

Starting Now

Starting now, we can work together on a strategy that puts you in the best path possible to pursue your long-term goals. We can modify our existing strategy to meet new economic realities or as your goals evolve. Starting now, we can build your confidence in the financial future you want for yourself and your family. Let’s keep the conversation flowing, schedule a time to talk, and reach out with your thoughts.

Last Week – Starting Now

The S&P 500 and Nasdaq indexes both gained on the week after being down more than 5% at the week’s lows. The large focus last week was on the Russian invasion of the Ukraine. Despite the invasion and following sanctions against Russia, the Fed is likely to remain focused on inflation, and sticking to the plan to raise rates.

Consumer spending, wages, and durable goods orders all surged higher. Rising home prices and and higher mortgage rates led to a 4.5% decline in new home sales. Pending home sales also dropped 5.7% in January. The Dow down 0.03%, S&P up 0.84%, and Nasdaq up 1.1%.

Week Ahead

Human and economic assessment is taken into account this week. Along with what actions world leaders take beyond the already imposed sanctions against Russia. From the economic standpoint, eyes are on the U.S. employment report coming out on Friday. Over 1.6M jobs have been created the past 3 months despite the impact of Covid variants, and another strong report may put further pressure on the Fed’s tightening schedule.

Year-to-date index performance; Dow down 6.3%, S&P down 8%, and Nasdaq down 12.5% 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.

Financial Advisor Erie CO focus on investment and wealth management, retirement planning; Boulder, Louisville, Niwot, Lafayette, Windsor, Berthoud, CO

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.

Market Brief February 22, 2022 – Sloppy Spring?

Is a sloppy spring in store this year? Tax season is underway and it may be a little more complicated this year due to a backlog at the IRS. As we continue to recover from the pandemic’s effects on the economy and our individual finances, you may be facing some complicated situations or a backlog yourself. 

Whatever questions you have, know you’re not going it alone. A problem shared is a problem halved. Together, we can tackle each issue you’re up against – whether it’s concerns about your tax return, an aging parent, or even strategies around how best to save for more of life’s unexpected changes. Even the most complicated situations can be simplified into actionable next steps. And I can be a great resource for you. Reach out and let’s talk about it.

Last Week

The stock market fell last week as the attention changed from inflation to the potential Russian invasion of Ukraine. The geopolitical uncertainty renewed investor interest in safe assets going into President’s Day weekend. The invasion does not necessarily impact corporate profits in the U.S. Therefore, a stock market drop due to the invasion could be viewed as a buying opportunity. For the week, the DJIA was down 1.9%, the S&P 500 was down 1.6%, and the Nasdaq was down 1.8%.

Trading remained volatile and inflation pressure remains. Amid supply-chain crisis and strong demand, January all-items producer price index was up 1.0% m-o-m and up 9.7% y-o-y. Consumer spending remains strong too. On Wednesday, January retail sales surprised with a 3.8% increase from December’s decline. And better than the 2.0% consensus estimate.

Also on Wednesday, U.S. Industrial production rose 1.4% following December’s decline. On Thursday, January housing starts slipped. Permits went the other way, rising to an above-consensus figure, suggesting that the spring building season may be strong. On Friday, existing home sales for January were also strong. Existing home sales were up 6.7% month-over-month, though down 2.3% year-over-year as available-homes inventory remains near record lows. Mortgage rates continued to rise, and new home construction fell 4.1% in January. Resulting from tight labor and materials but permits to build lifted to the highest levels since 2006.

Week Ahead – Sloppy Spring?

The current holiday-shortened data week kicks off today with the Case-Shiller home price index. Economists look for a 1.1% monthly gain. The Conference Board’s Consumer Confidence index expects a decline for February as inflation adds to consumers’ concerns. On Wednesday, the weekly mortgage application report expects to continue the downward trend. Rising interest rates are forcing more would-be homebuyers out of the market. Thursday brings the second (preliminary) estimate of 4Q21 GDP. The report expects the forecast to edge up to 7.0%. Thursday also brings January new home sales, which are expected at an 801,000. On Friday, U.S. durable goods orders and core capital goods orders are both forecast up 0.5% month-over-month. The industrial sector continues pushing out all the goods it can to reach high demand amid the supply chain crisis.

This week marked two years since the pre-COVID-19 market high and the stay-at-home trade may have finally run its course. Many pandemic favorites indicated slowing growth including Shopify, Etsy, and Roblox. Fun investment nugget, Hilton Worldwide is now outperforming Zoom Video Communications since the pre-pandemic market peak in February 2020. Year-to-date index performance; Dow down 6.2%, S&P down 8.8%, and Nasdaq down 13.4% 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.

Erie CO Financial Advisor; investments, wealth management, retirement income planning; Boulder, Broomfield, Louisville, Niwot, Windsor, Berthoud CO

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.

Market Brief February 14, 2022 – Love & Money Connection

love & money

This week I couldn’t resist sending out a fun finance-related “Love & Money” market brief on Valentine’s Day. This particular holiday can be tricky, as many people tend to have mixed emotions about their love life at times – and you could say the same goes for how people feel about their financial strategy.

Sometimes the matters closest to our heart are the most difficult to discuss, and that’s all the more reason to address it. Working with a trusted financial professional can give some great insight on how to break through psychological barriers to understand what’s truly behind your money behavior. I hope it sparks that need-to-have talk with the someone you trust.

Last Week

The stock market returned to its bearish ways. January CPI posted its highest annual increase in 40 years. For the week, the DJIA was down 1.0%, the S&P 500 was down 1.8%, and the Nasdaq Composite was down 2.2%. The S&P 500 fell hard at the end of the week, falling on both Thursday and Friday. The two-day loss was 3.7%, the worst since 2-day’s since Q4 2020. Interestingly, the index fell 9.6% in 2020 while the current decline is 9.8%.

Weekly mortgage applications tanked 8.1% last week thanks to rising interest rates. With the 10-year yield rising, stocks’ forward 12-month P/Es have been falling. On Thursday, the January all-items CPI was up 0.6% month-over-month and 7.5% year-over-year. Core CPI was up 6.0% from a year ago. That represented the greatest increase in annual core CPI since 1982. Used-car prices jumped 40% from last January and were a major contributor to the overall increase.

The rising price news puts additional pressure on the Fed, as markets are now pricing in a better than 50% probability of a 0.50% rate hike in March and creating whispers of an inter-meeting move. Some analysts are anticipating up to seven 0.25% increases for the year.

In a market looking for good news, weekly initial jobless claims came in at 223,000, below the 230,000 consensus; continuing claims continue to set new post-pandemic lows, at 1.621 million. Consumers confidence is down, pointing to one major concern – inflation… superseding any good news, wages, or Omicron.

Week Ahead

Kicking off with V-day today, bulls will be anxious to see if investors can rediscover their love for stocks. Unfortunately, Tuesday brings the January PPI. In this period of supply-chain crisis, expectations are for an annual change of 9.2% in all-items producer prices.

The Fed also has a scheduled “closed-door” meeting today focused on the “advance and discount rates”, fueling speculation of potential action between scheduled meetings. Whatever the outcome, it seems the only certainty is continued volatility, especially with the Russia-Ukraine situation sparking additional fears late last week. A Russian invasion on the Ukraine would likely set off a rush to lower-risk assets. However, it does not change the outlook for corporate profits over time, so any drop in equities will likely be temporary.

The end of the week presents housing data with existing home sales and construction spending. Some home buyers have pulled back as mortgage rates have jumped to near 4%, with applications dropping last week. Year-to-date, the Dow is down 4.40%; the S&P 500 is off 7.29%; and the Nasdaq Composite is back in correction territory, down 11.85% as of last 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.

Financial Advisor Erie CO focus on investment, wealth management, and retirement planning; Boulder, Louisville, Niwot, Lafayette, Windsor, Berthoud, CO

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.

Market Brief January 31, 2022

U.S. equities rallied late in volatile trading as investors worried over Fed policy, rising interest rates, and high inflation. Investors may be looking for some relief after a bumpy January. This week kicks off another busy week of economic data. Three central bank meetings are on the calendar along with the monthly U.S. jobs report.

inflation

Last Week – Fed & Inflation

Despite wild intraday gyrations in the stock market last week, the S&P 500, the Nasdaq, and the Nasdaq 100 were all basically flat for the week. But at the end of it all, that was an improvement relative to recent weeks. The market saw a huge rally on Friday, with the S&P 500 soaring 2.4%, while both the Nasdaq and QQQs rocketed 3.1% higher. It was the largest daily gain for the “500” since June 2020 and the biggest jump for the other two indices since March 2021.

The stock market finally had a winning week, the first of the year, though January remains deeply in the loss column. Equities are under pressure from inflation, supply chain, Fed decisions, and Covid-19 restrictions. Last week was one of the busiest of the 4Q earnings season. Earnings were overshadowed by the GDP data, which in turn was overshadowed by the Fed meeting. Last Tuesday, the Case-Shiller Home Price index showed unrelenting home-price inflation, with prices up 1.2% month-over-month for November and up 18.3% year-over-year. December new home sales on Wednesday came in at an 811,000 SAAR, topping expectations for 760,000.

The Federal Reserve’s policy statement from last week plus Jerome Powell’s post-meeting press conference made it abundantly clear it is ready to start raising short-term interest rates in March. The futures market is now pricing in 5 rate hikes in 2022, 25 basis points each. Some believe there could be more. This would not be surprising as the Fed is behind the inflation fighting curve. The December Consumer Price Index rose 7% in 2021, the largest yearly increase since 1981.

Week Ahead

The current week mercifully says goodbye to January, which has been the worst opening month for stocks since 2009. On Tuesday, the ISM’s manufacturing PMI is forecast to signal continued expansion. But, at a consensus 57.5 reading for January, this series is likely below the 60 level that prevailed for almost all of 2021. This results from the given current realities of inflation, supply chain, and COVID.

On Tuesday, construction spending is forecast to rise 0.7% for December. The JOLTs job openings for December is forecast to remain north of 10 million. On Wednesday, ADP’s private payrolls report is expected to come in at 225,000 for January. This is down from the prior 807,000 for December. On Thursday, economists will watch initial unemployment claims for signs that Omicron impacts are receding; from a prior 260,000, economists are looking for as few as 230,000 new initial claims. On Friday, January nonfarm payrolls are forecast up by 200,000, in line with December’s 199,000 gain. Unemployment is expected to hold steady at 3.9%. And hourly wages are forecast up 5.2% year-over-year.

Earnings season is under way and announcements expected this week include Alphabet Inc., Amazon.com Inc., Meta Platforms Inc., Exxon Mobil Corp, and many more. Year-to-date through Friday; the Dow is down 4.4%, S&P 500 down 7.0% and Nasdaq Composite down 12.0%.

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.

Market Brief January 24, 2022

known

A new year, a new tune? So far that is the trend…

With all the speculation around what this year will bring, including the effects of inflation and an ongoing pandemic, whether markets will continue to soar, along with predicting when the Fed may raise interest rates (and how many times), a quote from the late Donald Rumsfeld, former U.S. Secretary of Defense, comes to mind:

“There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.

The idea of known unknowns is helpful in forming your financial strategy. 

What do we know already (known knowns)? 

Are we conscious of what we are not exploring (unknown unknowns)? 

What about biases and unconscious decisions (unknown knowns)?

As this year unfolds and we move into a potentially volatile time in the economy, let’s work closely together, examining your goals and adjusting if needed as conditions change to keep you on track.

Here is a review of last week and what to look forward to this week…

Last Week

The Nasdaq fell 7.5% due to disappointing earnings results. The drop put the Nasdaq below its 200-day moving average for the first time since April 2020. The S&P 500 fell 5.5% and is off 8.25% from its early January highs. Every S&P 500 sector lost ground, with consumer discretionary, technology, and financials all down between 6-8%. Concerning inflation and corporate profits accelerated an overall risk off movement by investors.

Globally, anxieties rose over Russia making a move against Ukraine. In the U.S., a surprise drop into negative territory for January’s Empire State manufacturing survey revealed the economic damage that the omicron variant has done. Weekly jobless claims took an unexpected turn higher, totaling 286K as illness-related absences increased.

Reported housing data came in mixed as mortgage rates ticked up, reaching the highest levels since March 2020. New home construction ended 2021 on a positive note and annual housing starts were the highest since 2006. Homebuilder sentiment slipped slightly in January as lumber prices have soared back to near last summer’s highs, while existing home sales sank 4.6% in December on record low inventory. Overseas, China’s central bank moved to shore up a slowing economy hurt by the real estate sector, cutting several benchmark lending rates. China’s economy grew by 8.1% in 2021, below forecasts of 8.4%.

The Week Ahead

Investor sentiment has been pushed to levels not seen in a long time. The latest AAII survey showed bullish sentiment at 21%, an 18-month low, while bearish sentiment jumped to 47%, a 16-month high. Readings at those extremes may suggest an oversold market in the short term. However, this week is packed with potential big-impact announcements. The largest being the FOMC’s statement to be released mid-day Wednesday. Will Powell change his hawkish tone given recent risk-asset performance, or stay the course laid out in December? Reaction may be volatile either way.

Manufacturing and services PMIs, along with consumer confidence numbers, will precede the Fed’s account. Thursday brings the first look at Q4 GDP, where consensus forecasts have slowly come down and currently sit around 5.3%. Durable goods and pending home sales will also report on Thursday, and then Friday an inflation update lands with the Core PCE Price Index. And don’t forget earnings season is in full swing as 108 names in the S&P 500 are expected to report quarterly results.

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.

Santa Rally & Make Merry This Season

Santa Rally

Santa Rally or not, we’ve been through a lot in 2021 – more quarantining, hybrid work environments, ups and downs in the economy, and political uncertainty. Chances are, you’ve been so busy adjusting to all the changes while also trying to hold onto family ties and traditions that you’ve had little time to relax and enjoy this special time of year. 

Well, now is your time. Take it. One of the most valuable things you can do in a busy season is to find moments of “me time.” Prioritizing wellness, including in your financial life, and taking time to set your strategy allows you to more generously show up for others and extend goodwill. I can help show you how. So, go ahead, start the timer. Carve out a few minutes for yourself today.

Last Week

Equities moved higher after risks that the Omicron COVID variant would slow down economic activity wanned. The S&P 500 and Nasdaq indexes posted gains over 3%, and Dow was up 4.05% for the week, as volatility fell. The S&P hit a new all-time high on Friday. Every S&P 500 sector was positive. Crude oil jumped nearly 9% to climb back above $70 per barrel. Consumer prices rose 6.8% Year-over-Year and 0.8% Month-over-Month in November. This was the fastest annual pace since 1982, and in-line with expectations. Consumer sentiment rose to 70.4 in December, still lower than a year ago due to higher household inflation expectations.

On the labor front, resignations declined by 4.7% in October. Openings moved back up to 11.03M, up 4.1% Month-over-Month and just below the all-time high. Weekly jobless claims sank to a multi-decade low of 184K. Paychecks and hours worked grew in Q3, but productivity slumped 5.2%, worse than initial reports.

Week Ahead – Santa Rally or Coal to Wrap up 2021

The last full week before the holiday season begins. Will the Santa Rally continue, or finish the year with a lump of coal? This week features four central bank meetings and a host of economic releases. On Wednesday, the FOMC may reveal an accelerated tapering timeline. Markets are already pricing in better than 50% odds of a rate hike by May 2022. More inflation figures are reported with U.S. PPI on Tuesday, followed by CPI from the UK and Canada the next day.

This week also brings the first look at manufacturing and services PMIs for December in the U.S. and Eurozone. China’s monthly data dump will include annual figures for retail sales and industrial production. Other events of note include U.S. retail sales, regional manufacturing updates from New York and Philadelphia, and Australia’s employment account. The week closes with UK retail sales and Germany’s business sentiment information.

Year-to-date index performance; Dow up 17.53%, S&P up 25.45%, and Nasdaq up 21.28% through the close on Friday.

Happy holidays, see you next year!

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Omicron Variant and the Impact on Markets

omicron variant

A volatile week sent U.S. equity indexes lower after a disappointing jobs report, dampening Fed comments, and negative Omicron variant news. December kicked off with some fireworks, and the rest of the month looks ready for more volatility as opposed to the seasonal Santa rally investors have come to expect. All three major indexes finished lower for the week; the Dow down 0.76%, S&P down 1.18%, and Nasdaq down 2.6%.

Last Week – Omicron Variant

The S&P 500 recorded its second consecutive weekly loss. The index finished the month of November down 0.83% after rising to record highs early in the month. Equity markets dropped on the announcement of the omicron variant. The variant originated in South Africa but has made its way to the U.S. The VIX volatility index spiked over 100% from an October low to the highest level seen since January of this year.

Fed chair Powell’s Senate testimony surprised markets by implying a potentially quicker path for tapering and eventually rate hikes. Even in the face of the omicron variant. Adding it’s probably time to stop using the word “transitory” to explain the recent surge in inflation. Powell also warned the omicron variant could slow the labor market’s recovery and increase supply chain disruption. The market is currently anticipating one rate hike by July 2022.

Job reports were mixed last week. U.S. private sector job growth was robust in November, with the ADP report coming in above estimates at 534K. On the other hand, the non-farm payroll report disappointed with only a 210K rise in November payrolls. This figure was less than half the estimate, despite the unemployment rate falling more than expected to 4.2%. The 4.2% mark is the lowest since February 2020. The U.S. economy has now recovered 83% of the jobs lost in March and April of 2020.

In other economic news, U.S. ISM Manufacturing PMI ticked up to 61.1 in November. The services PMI recorded another all-time high of 69.1 as strong demand was boosted by supply chain improvements. According to the Conference Board’s report, consumer confidence fell to a 9-month low on rising prices and pandemic concerns. Despite rising mortgage rates, pending home sales jumped 7.5% in October as buyers returned.

Week Ahead

This week the main U.S. events include Treasury auctions, which did not go well the last time around, and the JOLTS job openings report on Wednesday. CPI report comes out on Friday. The market is anticipating a blowout November CPI inflation rate to be announced in the week ahead. The median estimate of 6.7% growth would be the highest since 1982. On the international calendar, China headlines with inflation data and trade balance numbers. US investors will also continue to monitor exposure to China as pressure from Chinese regulators led Didi Global Inc. to make the decision to delist from the NYSE in favor of a Hong Kong listing. Year-to-date index performance; Dow up 12.98%, S&P up 20.83%, and Nasdaq up 17.05% through the close on Friday.

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New Covid Variant Impact

new covid variant

U.S. equities tumbled in a shortened Friday session over fears of a new COVID-19 variant. Stock indexes were little changed heading into the U.S. Thanksgiving holiday, but the late-week meltdown sent stocks lower. Last week was a reminder that the economic recovery path is still dependent on progress against the pandemic and how quickly conditions can change. All 3 major indices finished lower on the week.

Last Week – New Covid Variant

The new covid variant strain is thought to be the most mutated variant yet. This is creating concern over the effectiveness of current vaccines and the durability of global economic recovery. Prior to Friday’s decline, the S&P 500 index had gained over 9% for the quarter and over 26% YTD. For the week ending Friday, the Nasdaq was down 3.52%, the S&P 500 down 2.18%, and Dow finished down 1.95%.

The volatility index soared 10 points to 28.50. Oil prices initially rallied after the U.S and five other countries coordinated to release reserves but ended up down 13% on the week. The average price of gasoline in the U.S. is $3.70 per gallon, approximately $1.25 higher than one year ago. However, oil prices did not decrease on the news, as markets viewed the amount too small to make an impact on prices at the pump.

U.S. economic data was largely positive, however, the new covid variant renewed pandemic risks. Jobless claims, which totaled a stunning 199K, was the lowest level since 1969. President Biden announced he would nominate Fed chair Powell to a second term. Consumer prices have yet to ease, as the Y/Y Core PCE Index rose 4.1%, the highest annual level since 1990. Private sector growth remained robust in November, with U.S. manufacturing PMI increasing to 59.1, but services slipped to 57.0. The second estimate of Q3 GDP ticked up to 2.1% from 2.0%, with a massive upward revision to the increase in wages and salaries.

New home sales rose 0.4% in October, and existing home sales climbed 0.8%. Realtors are projecting full-year sales of over 6 million, which would be the highest total since 2006. Finally, global PMIs echoed U.S. conditions, with strong private sector growth being tempered by inflationary pressures and supply bottlenecks.

Week Ahead

Last week was a reminder that the economic recovery path is largely dependent on progress against the pandemic and how quickly conditions can change. Central bank leaders will likely have to continue exercising policy flexibility. Some economists just published expectations of a potential 8% surge in Q4 U.S. GDP, but it remains to be seen how this new covid variant threat may undermine that outlook. After last week’s strong unemployment claims number, investors will look for additional labor market clarity from Wednesday’s ADP and Friday’s NFP reports. This week also brings U.S. ISM manufacturing and services PMIs, along with the regional report from Chicago.

Year-to-date index performance; Dow up 14.03%, S&P up 22.33%, and Nasdaq up 20.20% through the close on Friday.

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New Infrastructure Plan and Rising Inflation Concerns

rising inflation

Rising inflation led Interest rates to rise along with commodities and cryptocurrencies. Hot inflation data sent interest rates higher and U.S. equities moderately lower. This week the focus shifts to how inflation and supply chain issues are affecting consumer spending and industrial production. All indexes finished slightly lower for the week ending Friday. The Dow down 0.56%, S&P down 0.27%, and Nasdaq down 0.68%.

Last Week – Rising Inflation

Treasury yields rose significantly over the course of the week with the infrastructure plan and rising inflation concerns. Federal Reserve Chairman Jerome Powell had said the previous week that the Fed would be patient about raising interest rates. However, those concerns were realized further on Wednesday as inflation (CPI) surged 0.9% Month-over-Month and 6.2% Year-over-Year. Estimates were 0.6% and 5.9%, respectively. The largest YoY jump since 1990.

Investors are not sure the Fed will be able to hold off a rate hike for as long. The chance of a rate hike by next June rose from 55% to 77% in one day, and yields soared. Yields rose materially again on Friday with the UM Consumer-Sentiment Index coming in at 66.8, the lowest since 2011. Americans’ expected inflation rate increased to 4.9% for the next year. Rising wages is also pressuring prices. According to the JOLTS report, 4.4 million Americans quit jobs in September.

After five straight weeks of gains, the S&P 500 Index posted a down week. The index has been positive all but two months in 2021, January and September. Six of 11 S&P 500 sectors fell last week. Treasury yields lifted across the curve, especially at the front end as traders continued to pull rate hike expectations forward. U.S. Core inflation ran at a 4.6% pace, pointing to concerns that inflation may be more persistent than policymakers think. Wholesale prices, as measured by the PPI, swelled 8.6% YoY.

Equities recovered some of their losses later in the week with information technology and materials rising the most. U.S. initial jobless claims of 267K were above the 260K expected, but lower than the previous week’s 269K. Claims have continued to decline since peaking in early April and are approaching pre-pandemic levels. Electric truck maker Rivian Automotive Inc., which IPO’d at $78 per share last week, jumped 66.60% through Friday. The company is now worth more than both Ford Motor Company and General Motors Company. Making it the largest US company without revenue. Johnson & Johnson announced the spin-off of its consumer health business, creating two separate companies.

Week Ahead

This week the focus shifts to how pandemic-related disruptions are affecting consumer spending and industrial production. In the U.S., the economic calendar kicks off with the Empire State Manufacturing Index today. October retail sales and industrial production numbers on Tuesday. Housing starts drop Wednesday, with the Philly Fed Manufacturing Index on Thursday. There are a number of speeches from FOMC members throughout the week. It is becoming clear that investors are in disagreement regarding both fiscal and monetary policy. The “transitory” argument is wearing thin. Across the pond, the Bank of England surprised markets last week by holding rates steady. UK CPI is expected to show further acceleration.

Earnings announcements expected this week include NVIDIA Corp, Walmart Inc., The Home Depot Inc., Cisco Systems Inc., Lowe’s Companies Inc., and more. Year-to-date index performance; Dow up 17.95%, S&P up 24.67%, and Nasdaq up 23.06% through the close on Friday.

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How High Did Earnings Lift Indexes

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.

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Supply Chain and Earnings Kick-Off

supply chain

U.S. equities posted solid gains, the labor market improved offsetting inflation pressures. Investors will be wary of seasonal weakness even as the S&P 500 is showing signs of reversing its recent downtrend. This week’s Q3 earnings reports will feature prominent names like Netflix, Tesla, Intel, AT&T and American Express. Last week all indexes finished up. The Dow up 1.58%, S&P 1.84%, and Nasdaq 2.18%.

Last Week – Supply Chain

The S&P 500 Index returned 1.84% last week, the best week since mid-July and seventh best week for the year. Equities shook off negative supply chain headlines and rallied on the strength of earnings. Labor market improvements also supported the positive week, offsetting ongoing inflation pressures. The U.S. supply chain has been bottlenecked as a result of the COVID pandemic. Inventory is drying up as clogging remains an issue at U.S. ports. Inconsistent passenger airline activity is holding down freight via airlines. U.S. inflation rose higher in September by pandemic-driven shortages. CPI advanced 5.4% from the year earlier and the PPI advanced 8.6% from the year earlier. In meeting notes, the Fed commented that it observed PCE (personal consumption expenditures index) prices well above their targeted 2% rate but that they continue to anticipate this to be transitory.

Despite supply issues, equities rallied as earnings season kicked off with some strong announcements last week. Some of the more notable announcements were from mega cap banks. Strong bank earnings announcements further confirm that the U.S. economy is on solid footing despite some supply chain and employment headwinds.

The Minutes from the September 21-22 Federal Open Market Committee meeting released. The Fed indicated that tapering could begin as soon as mid-November and fully anticipates it will begin before 2022. They expect supply pressures to partially ease as supply chain issues resolve and import prices fall. High resource utilization rates in 2022 are also expected to assist in lowering pricing pressures and in total the Fed anticipates the PCE will fall below 2% in 2022 and “edge” higher to reach 2% in 2024. Retail sales rose 0.7% in September led by general merchandise stores, gas stations and autos.

New unemployment claims fell below 300K for the first time since the pandemic began, a milestone for the job market. Jobs openings also fell for the first time in 6 months but quits pushed to a record high of 4.3 million in August. The “Great Resignation” is real.

Week Ahead

Looking ahead this week, earnings season continues with 76 names in the S&P 500 expected to report quarterly results. Some notable names
include: Tesla Inc., Netflix Inc., Honeywell International Inc., Union Pacific Corp. and American Express Co. The U.S. economic calendar is light, with industrial production numbers today followed by housing data on Tuesday and Thursday. The Fed’s Beige Book and Philly Manufacturing Index will provide additional insights regarding regional economic conditions. Finally, an eye will be on the Evergrande Group situation after China’s central bank sought to ease concerns about spreading economic risks.

Year-to-date index performance; Dow up 15.3%, S&P up 19.0%, and Nasdaq up 15.6% through the close on Friday.

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Evergrande and the Impact on the Markets

Evergrande

U.S. equities overcame a rough start the week, due to Evergrande uncertainty, then finished higher. Stocks went on a roller coaster ride, with the VIX soaring then crashing post-Fed, whom provided expected monetary policy guidance. Questions remain how quickly tapering may be completed and how early rate hikes may appear. Last week all indexes finished up; Dow 0.62%, S&P 0.52%, and Nasdaq 0.03%.

Evergrande Impact Last Week

A volatile week for stocks turned positive mid-week. Initially major indexes dropped 2-3% on fears of systemic risk from Evergrande, the Chinese
real estate company. Indexes rallied later as the Fed downplayed rate hikes while furthering taper discussion. On Monday, investors were skittish by the debt crisis at property developer China Evergrande Group. China President Xi Jinping is trying to reduce property-sector leverage to make housing more affordable for the people of China.

Back in the US, Federal Chair Powell took note of the global supply chain disruptions. Powell said Friday, “I’ve never seen these kind of supply-chain issues, never seen an economy that combines drastic labor shortages with lots of unemployed people and a lot of slack in the labor market.” His comments come after Wednesday’s post meeting statement outlining the Fed’s reduction of monthly asset purchases as soon as its next meeting in November. The other notable projection was half of the 18 officials expect to raise interest rates by the end of 2022. This contrasts with the June meeting where most Fed officials expected rate increases in 2023.

In other news, U.S. housing data was mostly positive, with housing starts and new home sales rising in August, while existing home sales slipped 2% as surging prices hampered first-time buyers.

Week Ahead

Durable Goods Orders released today and showed positive signs. Inventory data follows later in the week. Inflation may be on the backburner right now, but it is not forgotten. With prices potentially staying elevated and the labor market moving back towards full employment, questions remain on how quickly tapering may be completed and how early rate hikes may appear. Futures markets have priced in the first rate increase for December 2022. Year-to-date index performance; Dow up 13.69%, S&P up 18.62%, and Nasdaq up 16.75% through the close on Friday.

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Inflation Expectations Rising

inflation

U.S. equities fell into the weekend despite strong manufacturing data, as inflation expectations weighed. Stocks dropped for a second straight week. Last week all indexes finished down. The Dow down 0.05%, S&P 0.55%, and Nasdaq 0.46%.

Last Week

The S&P 500 and Nasdaq finished down less than 1%. Volatility rose with the VIX closing at a 1-month high. U.S. manufacturing numbers surged, and optimism for the next 6 months remained high. The Empire State index leapt 16 points to 34.3 in September. The Philly Fed index rose 11 points to 30.7, above estimates. Industrial production increased 0.4% in August after a revised 0.8% gain the prior month. The miss was largely due to Hurricane Ida and supply chain inefficiencies. Capacity utilization climbed to 76.4%, the highest rate since December 2019. U.S. retail sales surprised with a 0.7% gain in August despite supply chain issues and escalating Covid-19 cases.

Consumer inflation still showed a significant bump but came in less than feared. A New York Fed household survey showed inflation expectations continued to ramp up in August. Internationally, August wholesale prices sustained gains in Germany and Japan on solid global demand. CPIs in Canada and the UK surged to multi-decade highs. Weak Chinese data also contributed to the market’s choppiness. Retail sales only grew 2.5% in August versus forecasts of 7%. Industrial production came in slightly below predictions at 5.3%. British retail sales fell for a fourth straight month in August, even as payrolls increased by a record 241,000. Australia’s employment dropped more than expected, supporting the Reserve Bank’s decision to delay a review of weekly bond purchases.

Week Ahead – Inflation Expectations

All eyes will be on the FOMC as they wrap up their two-day meeting on Wednesday. Pressure is mounting for more specifics on tapering given recent U.S. economic data. According to a Bloomberg survey of economists, tapering is expected to begin in November 2021. Chairman Powell has indicated the decision to taper is independent of any decision to raise interest rates. With unemployment still above 2019 levels, the Federal Reserve is expected to be patient with increasing rates.

U.S. housing reports will also drop this week. The NAHB Index reported positive numbers. Housing start data reports on Tuesday, existing home sales on Wednesday, and new home sales on Friday. The S&P 500 is only down about 2% this month. More volatility may be on the horizon if issues like the debt ceiling gain momentum. Treasury Secretary Yellen has urged Congress to increase the debt limit as soon as possible to avoid any economic turmoil. The debate could influence the Fed’s actions as well.

Investors will focus on next week’s Fed meeting and the timing of tapering. Tapering is often viewed as a potential negative catalyst in the near term. However, strong economic growth coupled with record corporate profits can potentially keep the market moving higher. Investors will also be watching to see if Evergrande, the Chinese real estate company with a mountain of debt, poses any systemic risks to global markets. Year-to-date index performance; Dow up 13.00%, S&P up 18.02%, and Nasdaq up 16.73% through the close on Friday.

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Impact of a Slowing September

slowing

Stocks pulled back, but the S&P 500 and Nasdaq still sit firmly above their respective 50-day moving averages. U.S. equities eased off record highs as slowing growth prospects and persistent inflation led to some profit taking. With all the global central bank commentary last week, anticipation is building for the Fed’s next meeting on September 21-22. In the meantime, this week presents plenty of additional data for consideration. Last week, all indexes finished lower. The Dow finished down 2.1%, S&P down 1.7%, and Nasdaq down 1.6%.

Last Week – Slowing Data

U.S. equities eased off record highs as slowing growth prospects and persistent inflation led to some profit taking. The S&P 500 and Nasdaq both slipped 1.5%+. Market breadth was quite weak, as all 11 S&P 500 sectors finished in the red, with consumer discretionary the outperformer. The S&P 500 Index returned -1.68% last week, with all four days in the shortened holiday week posting declines. Including the previous Friday, the index has marked five consecutive losing days after hitting an all-time closing high. Equity markets have followed an upward trend most of the year.

Goldman Sachs downgraded its 2021 U.S. growth estimate to a 5.7% annual rate, below the 6.2% consensus. The Fed’s Beige Book noted that growth had “downshifted slightly to a moderate pace”, slowing led by escalating inflation and a shortage of goods. On the labor front, U.S. job openings hit record highs for the fifth straight month, climbing to 10.9 million in July and exceeding total unemployed by 2.5 million. Workers continued to quit jobs at historically high rates, and new unemployment claims fell to another pandemic low of 310,000. The four-week moving average of 339,500 was also a pandemic low, indicating there has not been a rise in layoffs due to the Delta variant.

Producer prices in the U.S. surged 0.7% in August, above estimates but below July’s 1% pace. Excluding food and energy, core PPI only increased 0.3% Month-over-Month, but still 6.3% higher Year-over-Year. August’s year-over-year increase in producer prices is the largest on record. Labor and materials
shortages and supply chain bottlenecks contributed to the price increases. Regarding inflation, the CEO of Union Pacific said in an interview last week that “it doesn’t look like it’s temporary,” and that cargo congestion will likely continue well into next year.

Week Ahead

With all the global central bank commentary last week, anticipation is building for the Fed’s next meeting on September 21-22. This week presents plenty of additional data. U.S. CPI is reported on Tuesday, and consumer inflation updates from Germany, the UK, and Canada will also filter in this week. U.S. manufacturing numbers are expected to decline, with updates coming in the Empire State and Philly Fed indexes along with the industrial production report. U.S. retail sales have stalled over the past 3 months, and Thursday’s August report is anticipated to show a continued drop. China’s retail sales are likely to weaken considerably Year-over-year. The week finishes up with UK retail sales and U.S. consumer sentiment.

Year-to-date index performance; Dow up 13.07%, S&P up 18.7%, and Nasdaq up 17.28% through the close on Friday.

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Job Data Disappoints, How did Markets React

job data

U.S. equity indexes managed to close mostly higher despite disappointing job data. The S&P 500 and Nasdaq established new weekly closing highs. Investors weighed the impact of rising Covid-19 cases on the recovery. Growth outpaced value as the Nasdaq (+1.5%) led the advance last week. A holiday-shortened week is here and the economic calendar will be more focused on events abroad. The U.S. economic data is light. The most anticipated announcement will come from the ECB on Thursday.

Last Week Highlighted by Job Data

The S&P 500 finished August with its 7th straight monthly gain. Financial stocks dropped 2.3%. The dollar continued its slide after the economy added just 235,000 jobs in August. This number was far below expectations of 720,000. The ADP report showed that private payrolls also increased much less than forecast. The labor numbers cast doubt on the Fed’s next move on tapering. Manufacturing jobs rose, but services hiring slowed as the market braces for several jobless aid programs expiring this week. On the positive side, the unemployment rate fell to 5.2%. The underemployment rate dropped sharply to 8.9% from 9.6%, and jobless claims hit 340,000, a new pandemic low.

Other U.S. data reflected a still expanding economy that nonetheless is showing some cracks. Consumer confidence fell in August to the lowest level since February. Chicago PMI deteriorated more than expected to 66.8 from 73.4. Factory orders and the ISM Manufacturing PMI picked up in August. However, the services PMI fell from its July all-time high reading, consistent with the jobs report. U.S. home prices rose 18.6% Year-over-Year in June. The largest annual gain in history. Crude oil saw little volatility despite shutdowns from Hurricane Ida. OPEC decided to keep its modest production increases in place. China’s August manufacturing activity fell to 50.1 from 50.4. But a rebound in Chinese stocks lifted the emerging markets index by 3.4%. Canada’s economy unexpectedly contracted by 1.1% in Q2 as pandemic restrictions weighed.

Week Ahead

A holiday-shortened week and the economic calendar will be more focused on events abroad. The most anticipated announcement will come from the ECB on Thursday. Despite hot inflation data, the committee is expected to wait several more months before deciding on tapering pandemic-related asset purchases, which are due to end in March 2022. Additional monetary policy updates will come from Australia tonight and Canada on Wednesday.

In the U.S. more job data, the JOLTS Job Openings report comes out on Wednesday. Producer prices are expected to ease in Friday’s PPI report. In Asia, China will deliver trade balance and inflation numbers. Japan’s final Q2 GDP reading is released late on today. The Eurozone will present revised Q2 GDP and the UK’s monthly GDP update comes in Friday. The week also closes with Canada’s employment account.

Equity markets will look at the Covid case and death rates for how bad this variant will be, and how much economic activity will be slowed by it. Year-to-date index performance; Dow up 15.56%, S&P up 20.7%, and Nasdaq up 19.2% through the close on Friday.

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Markets Reach All-Time Highs

all-time highs

The S&P 500 and Nasdaq Composite Indexes closed at all-time highs after the Fed Chair reassured markets. Equity indexes rallied as investors weighed the tragic events in Afghanistan against more transparency from the Fed’s monetary policy timeline. The Nasdaq rose nearly 3% and the Dow and S&P 500 added 1-1.5%.

Last Week All-Time Highs

U.S. equity indexes rallied as investors weighed the tragic events in Afghanistan against more transparency from the Fed. Crude oil rebounded with an 11%+ jump, and gold prices rose modestly. Treasury yields held their weekly gains. The U.S. dollar dropped after Fed Chair Powell calmed markets with his comments on inflation and tapering. PCE Core Price Index data show annual price increases at a 30-year high of 3.6%. However, Powell reiterated that higher prices are not broad-based. Surge-price categories are moderating, and that both wages and long-term expectations do not suggest “excessive inflation”. Powell affirmed that asset purchase tapering is likely to begin later this year. (Tapering is the central bank’s plan to start gradually reducing bond purchases by the end of the year.) He also said that interest rate hikes aren’t on the table until the more stringent maximum employment test is met.

In other U.S. economic news, August Flash PMIs showed continued expansion. However, this reading is at a slower pace than July and slightly below expectations. Existing home sales rose 2% in July. All the annual gains in homes priced above $500K, while new home sales ticked up 1% in July. Durable goods orders for July fell 0.1% Month-over-month. These numbers did exceed forecasts, while the second Q2 GDP estimate came in slightly higher at 6.6%. Corporate profits increased at a 9.2% quarterly rate to a record $2.8 trillion, supported by historically tight credit spreads. Overseas, Germany’s August PMIs fell from July but remained solidly in expansion as Q2 GDP grew more than expected at 1.6%. Finally, minutes from the ECB’s latest policy meeting showed some concern of understating inflation risks that may or may not be durable.

Week Ahead

Based on the market’s reaction to Powell’s Jackson Hole speech, investors seem to feel they have more clarity around the Fed’s intended path and can avoid another “taper tantrum”. Geopolitical tensions and coronavirus variants may affect economic growth or dent consumer sentiment. Powell made it clear how strong the link is between jobs and potential rate hikes, and this week will bring several updates on the labor front, with the ADP report on
Wednesday followed by non-farm payroll report on Friday.

China’s Manufacturing PMI arrives Monday, where the government continues regulatory crackdowns that keep Chinese stocks under pressure. Tuesday is busy with German employment numbers, Canadian and Australian GDP updates, and U.S. consumer confidence. Oil’s recent volatility will focus traders on Wednesday’s OPEC meetings. Global growth concerns have eased somewhat, and increased crude production is expected. Lastly, U.S. ISM manufacturing and services PMIs are anticipated to fall Month-over-Month while remaining firmly in growth mode.

Year-to-date index performance; Dow up 15.84%, S&P 500 up 20.06%, and Nasdaq up 17.39% through the close on Friday.

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