Friday, September 24, 2021
U.S. and International Equities
Major U.S. Markets Finished higher while International Markets Selloff
The major markets finished the week higher, with the Dow Jones Industrials leading the averages. Moreover, US small caps have been a leader for the last rolling one month time frame. LPL Research continues to be positive on small caps amid strong earnings growth prospects and rising earnings estimates, supporting valuations which appear reasonable. Emerging markets, as represented by the MSCI EM Index, continue to be the largest detractor on the back of increased risk of Chinese regulations and Evergrande default contagion fears.
Energy Powers Markets for a Second Straight Week
Energy stocks, which sold off earlier this summer, continued to move higher as concerns mount over lower than expected worldwide supply. Market concerns continue over China not having enough coal and natural gas despite the country’s energy stockpiling as rivals in North Asia and Europe compete for a finite supply. Other cyclical sectors, including materials, industrials, and especially financials outperformed the broader S&P 500 index this week, as the economy continued to show signs of expanding despite the Delta variant spread.
Fixed Income and Commodities Recap
Bonds Lower while Oil Propels
The bellwether Bloomberg Barclays Aggregate Bond Index finished lower and broke its streak of three consecutive higher weeks. Bond price declined as the 10-year Treasury yield followed last week’s increase to move higher again after the Federal Reserve’s (Fed) meeting Wednesday. Oil and Natural Gas were the only commodities this week to finish in the green amid worldwide supply concerns.
Economic Weekly Roundup
The major economic news this week was the conclusion of the Fed’s two-day Federal Open Market Committee (FOMC) meeting on Wednesday. As expected, there were no changes to current interest rate or bond purchasing policies. However, the Fed continued to prepare the market for a reduction (tapering) of bond purchases.
Supply chain bottlenecks, which we have seen affecting the economic landscape since the beginning of this year, along with the Delta variant have played a vital role in shaping how the Fed views inflation as well as GDP growth for the remainder of 2021.
The Fed reduced its GDP expectations in 2021 from 7% to 5.9%. In addition, the Fed expects higher inflation with personal consumption expenditure (PCE) headline and core metrics at 4.2% and 3.7%, up from 3.4% and 3.0%, respectively, in June. However, the Committee sees inflation falling slightly in 2022 and raised its economic growth forecast for the year as well.
Other highlights from this week’s economic calendar included:
- Initial claims for unemployment insurance increased more than economists expected to over 350K for the week ended September 18.
- Continuing claims also missed expectations, increasing 245K from the prior week to over 2.8 million.
- Leading indicators for August from the Organization of Co-operation and Development (OECD) signaled moderating global growth ahead. Among major countries, Brazil saw a month-over-month decline, while Europe’s growth outlook has improved the most over the past six months.
The following economic data is slated to be released during the week ahead:
- Monday: August durable orders
- Tuesday: September consumer confidence, August wholesale inventories, July Federal Housing Finance Agency July Home Price Index, July S&P/Case-Schiller Home Price Index
- Wednesday: August pending home sales
- Thursday: Revised Q2 GDP, weekly initial and continuing unemployment claims
- Friday: August personal consumption and personal income, September Markit Purchasing Managers Index and Institute for Supply Management September Manufacturing Report, University of Michigan consumer sentiment
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