September 10, 2021
Stocks took a breather this week. After seven straight months of gains, the S&P 500 and other stock market indexes have moved lower by - 0.75% to -1.00% so far in September. Equity markets do not move in straight lines and the modest declines we have seen are not a cause for alarm, particularly since markets are facing uncertainty around additional fiscal stimulus, an upcoming U.S. debt-ceiling debate, possible regulatory changes and concerns around China and their regulatory changes. We continue to recommend a post-recession stance in portfolios and look for opportunities to trim and add to positions during times of market volatility.
Lots of chatter about possible central bank actions. This week had a number of central banks meetings around the world. One of the common themes with those meeting was, when and how to start reducing monetary support for each economy being evaluated. In some cases this means raising interest rates while for others it means reducing the central bank’s asset purchase programs. One example from this week is the European Central Bank’s decision to “recalibrate” or slow their current asset purchase program. Of course, this leads to the question of when and by how much will the Federal Reserve here in the U.S. start to taper their bond purchases. Most of the talk this week hinted at some time in Q4.
The global resurgence of Covid-19 cases has slowed some economic activity. As cases continue to rise here in the U.S. and around the world due to the delta variant, the concerns for markets and the global economy are focused on whether the resurgence limit economic activity and will the resurgence have an additional impact on global supply chains. There are certainly no easy answers here, but one thing we have noticed is some slowing of economic activity in some recent reports. Of course, whether the slowing of some of the economic data should be viewed as concerning or just a return to more normal pre-pandemic levels is yet to be seen.
U.S. Economy—A quiet week for economic releases due to Labor Day holiday in the U.S.
- JOLTS Job Opening for July rose to a record high 10.9 million. Largest increases in available positions were in the healthcare, finance, insurance, accommodation and food service industries.
- Consumer Credit increase $17 billion in July, much lower than the $37.9 seen in June (the largest increase since 2006). Revolving credit (think credit cards), only increased 6.9% in July after jumping by 22.4% in June.
- Weekly Initial Unemployment Claims dropped to 310,000 this week which is an 18-month low.
- Producer Price Index was +0.7% month-over-month and +8.3% year-over-year, both slightly above of expectations suggesting that there are still some upward pricing pressures related to input costs.
- Wholesale Inventories were in line with expectations at +0.60% for the month of July.
Markets this Week (mid-day Friday)
- Stocks—Lower on the week with U.S. small- and mid-caps leading the declines (both down in the -1.5% to -2.00% range)
- Commodities—4 of 6 sectors lower, only Energy and Industrial Metals higher
- Currencies—U.S. Dollar Index moved higher this week and is now at a 92.55 level
- Bonds—Not a lot of movement this week with the 2-year treasury yield little changed at 0.21% and the 10-year treasury yield slightly higher at 1.33%
- Economic Reports
- NFIB Small Business Index, Consumer Price Index, Export and Import Prices, Industrial Production, Philadelphia Fed Index, Retail Sales, UofM Consumer Sentiment
- 20th anniversary of 9/11
- Earnings Reports
- Q2-2021 earnings season completes:
- S&P 500 Q2 YoY EPS estimate at the end of second quarter was +63.9%.
- Q2 earnings summary to date: 498 companies reported, 87% exceed estimate; 96% YoY EPS growth
- Earnings of interest: Oracle