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Earnings Beats Send Market Higher

Market Data as of Week Ending: 10/22/2021 unless noted otherwise

Equities

U.S. stocks continued to move higher, bringing the winning streak of weekly gains to three, with both the S&P 500 and Dow reaching record highs. Earnings season remained in full force with approximately 20% of S&P 500 companies reporting results. A series of positive earnings surprises has seemingly helped lift sentiment and counter elevated inflation concerns. Mid cap stocks outperformed both their large and small cap peers while growth stocks outperformed their value counterparts for the second week in a row. Real estate and financials along with traditionally defensive sectors, health care and utilities, led the index higher. Communication services was the only sector in negative territory for the second week in a row, as social media stocks’ sharp drop Friday caused the underperformance. Developed foreign stocks in Europe and Asia underperformed U.S. stocks while Emerging Market stocks outperformed developed foreign stocks.

Bonds

U.S. Treasury yields increased through most of the week with the 10-year ending the week at 1.63%. High yield bonds were the best performing asset classes as broader risk markets rallied due to positive earnings results. Long duration government and corporate bonds declined as weak demand for the Treasury Department’s 20-year bond auction added upward pressure on long-term rates. Investment grade and high yield corporate bonds ended the week with yields above 2.3% and 4.7%, respectively.

Macroeconomic Data

Economic data released during the week was mixed. This was especially evident in the housing market where building permits and housing starts both came in below expectations, potentially reflecting the ongoing supply-chain issues, while existing home sales jumped to their highest level since January. Industrial production fell -1.3% in September, marking the biggest decline since February when Winter Storm Uri shutdown Texas. The Philly Fed manufacturing index dropped 7 points to 23.8 in October, remaining in solid growth territory after a large jump in September. Flash IHS PMI readings showed the service side of the economy ramping up before the holiday season, while the manufacturing side slipped slightly due to ongoing labor shortages and supply bottlenecks.

 

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U.S. Stock Prices Higher for the Second Consecutive Week

Market Data as of Week Ending: 10/15/2021 unless noted otherwise

Equities

U.S. stocks advanced for the second consecutive week as gains for the S&P 500 were fueled by favorable economic data and corporate earnings. Despite oil prices reaching their highest level in over three years and supply chain issues that are expected to persist through the holidays, investor sentiment has looked through these issues as consumer demand appears resilient. Mid cap stocks outperformed both large and their small cap peers while value stocks lagged their growth counterparts. An eclectic group of sectors outperformed, led by gains in the materials, consumer discretionary, and real estate sectors. Communication services was the only sector in negative territory, followed by underperformance in the health care and consumer staples sectors. Developed foreign stocks in Europe and Asia outperformed U.S. stocks while Emerging Market stocks outperformed both.

Bonds

U.S. Treasury yields were mixed as short-term yields rose while the 10-year declined and ended the week at 1.59%. Long duration government and corporate bonds were the best performing asset classes as the yield curve flattened. Short duration government and corporate bonds declined and underperformed as expectations for higher short-term rates are getting priced into the market. Investment grade and high yield corporate bonds ended the week with yields above 2.2% and 4.7%, respectively.

Macroeconomic Data

Economic data released during the week was mostly favorable including weekly jobless claims that dropped to 293,000, the lowest level since before the pandemic. The employment situation supports continued economic growth with strong demand, 10.4 million job openings, and a supply gap that shows there are 5.0 million fewer people employed today versus the pre-pandemic level in February 2020. Inflation rose 0.4% in September following a 0.3% gain in August and is up 5.4% from a year earlier. Inflation has been persistently higher than normal as the economy grapples with supply constraints and labor shortages. Another sign that supports economic growth was a strong retail sales report. Retail sales were up 0.7% for the month of September and nearly 14% over the same period last year.

 

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Markets Endure Another Choppy Week

Market Data as of Week Ending: 10/08/2021 unless noted otherwise

Equities

U.S. stocks experienced another choppy week, with the S&P 500 rebounding from a sharp decline on Monday to post a gain for the week. Debt ceiling concerns weighed on investors before being alleviated late in the week after the Senate reached a temporary agreement. Large cap stocks outperformed both their smaller peers while value stocks outperformed their growth counterparts by a wide margin for a second straight week. The energy sector led with a strong gain as crude oil prices reached a seven-year high due to OPEC+ agreeing to keep production at its current level. The real estate and health care sectors lagged with modest losses. Developed foreign stocks in Europe and Asia underperformed U.S. stocks while Emerging Market stocks outperformed both.

Bonds

U.S. Treasury yields reached their highest levels in more than three months with the 10-year ending the week at 1.61%. Long and intermediate government and corporate bonds struggled as the rise in yields put pressure on longer duration bonds. High yield bonds were weaker as growth and inflation concerns weighed on risk assets. Investment grade and high yield corporate bond yields increased, ending the week with yields above 2.2% and 4.7%, respectively.

Macroeconomic Data

Economic data released during the week delivered mostly mixed results. U.S. factory orders rose 1.2% in August, surpassing expectations. The service side of the U.S. economy grew slightly faster in September as the ISM services index increased to 61.9%. U.S. jobs growth slowed for the second month in a row and fell short of expectations, adding just 194,000 jobs in September. The unemployment rate fell to 4.8%, a new pandemic low, as more people drop out of the labor force. Natural gas prices surged to record levels in Europe amid global fuel shortages, threatening to increase costs significantly for households. The spike in energy prices have caused many to be concerned over more persistent inflationary pressures.

 

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U.S. Stocks Pull Back on Inflation and Interest Rate Fears

Market Data as of Week Ending: 10/01/2021 unless noted otherwise

Equities

U.S. stocks fell last week, ending September in negative territory, breaking a seven-month winning streak and rounding out the worst monthly decline since the onset of the pandemic. Investor sentiment seemed to be weighed down by inflation and interest rate fears as many viewed the Fed’s policy statement in a hawkish light. Small cap stocks outperformed both their larger sized peers and value stocks outperformed their growth counterparts by a wide margin. Sector performance was mixed as more cyclical and economically sensitive sectors such as energy and financials held up well. Information technology and traditionally defensive sectors such as health care and real estate finished the week with losses. Developed foreign stocks in Europe and Asia underperformed U.S. stocks while Emerging Market stocks outperformed both.

Bonds

U.S. Treasury yields jumped last week as the 10-year hit a 3-month high before ending the week at 1.46%. U.S. Treasury bonds sold off as inflation and a more hawkish Fed increased expectations for an accelerated tapering and rate hike timeline. Short and intermediate government and corporate bonds eked out small gains while the sudden rise in yields put pressure on long duration bonds. Investment grade and high yield corporate bond yields remained relatively flat and ended the week with yields above 2.1% and 4.6%, respectively.

Macroeconomic Data

Economic data released during the week delivered mostly mixed results as investors’ focus remained intent on Friday’s inflation reading. Durable goods orders increased 1.8% in August as the increase in flying and rebound at Boeing gave a boost. U.S. consumer confidence fell to 109.3, marking a seven-month low, as the spread of delta and inflation has weighed on consumers. Jobless claims jumped to a two-month high due to a surge in California. Consumers continued to increase their spending in August, jumping by 0.8%, but only saw their incomes rise a modest 0.2%. The cost of what consumers are purchasing rose sharply again in August as the personal consumption expenditure price index climbed 0.4%. The Eurozone’s been impacted by inflation as the Bank of England (BoE) Governor Andrew Bailey said that UK gross domestic product probably won’t recover to pre-pandemic levels until early next year—a few months later than previously predicted.

 

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