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Inflation Eases but Labor and Supply Challenges Remain

Market Data as of Week Ending: 9/17/2021 unless noted otherwise

Equities

U.S. stocks were generally down for the week as the economic impact of the coronavirus continues to present supply challenges and labor shortages. Some investors are concerned that stock prices do not reflect additional problems that may arise from the coronavirus becoming endemic. The S&P 500 is expected to grow earnings more than 27% in the third quarter, which is the third-highest growth rate since 2010. Small cap stocks outperformed their larger peers and while styles such as value and growth were less important. Most major economic sectors were down for the week with notable exceptions in the energy, consumer discretionary, and real estate sectors. The materials and utilities sectors were the worst performing sectors as both were down more than 3%. Developed foreign stocks in Europe and Asia underperformed U.S. stocks while Emerging Market stocks lagged developed foreign markets.

Bonds

U.S. Treasury yields were mixed as the 10-year increased and ended the week at 1.36%, whereas the 30-year declined and ended the week at 1.91%. The combination of lower yields and risk aversion was favorable for long duration government and corporate bonds as both recorded solid gains for the week. Intermediate-term government bonds were the worst performing segment. Investment grade corporate bonds ended the week with yields above 2.0% and high yield corporate bonds are yielding nearly 4.6%.

Macroeconomic Data

Economic data released during the week was generally better than expected and was headlined by inflation data that shows signs of easing. The Labor Department announced that consumer price inflation dropped for the second consecutive month in August. After reaching 0.9% in June, the figures in July and August have come back down to 0.5% and 0.3% respectively. The year-over-year growth rate remains elevated at 5.3% but also declined compared to the prior month of 5.4%. After excluding food and energy, the year-over-year core inflation rate fell from 4.3% to 4.0%. Retail sales increased 0.7% in August, rebounding from a drop in July and were better than expected. Excluding autos, the gains were even stronger, up 1.8% with strong demand across a wide range of products. Weekly jobless claims rose to 332,000 yet remains near the recovery low.

 

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