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CCCM WEEKLY MARKET REVIEW

October 18, 2021

U.S. Markets:  U.S. stocks built on the previous week’s gains, helped by some strong economic reports and positive earnings surprises.  All of the major indexes finished solidly in the green.  The Dow Jones Industrial Average rose 1.6% to finish the week at 35,295.  The technology-heavy NASDAQ Composite rebounded 2.2%, closing at 14,897.  By market cap, the large cap S&P 500 gained 1.8%, while the mid cap S&P 400 and small cap Russell 2000 finished up 2.2% and 1.5%, respectively.

U.S. Economic News:  The number of Americans filing for first-time unemployment benefits fell below 300,000 for the first time since the pandemic began.  Just 293,000 applied for jobless benefits last week, a decline of 36,000 from the previous week.  Economists had expected claims to total 318,000.  Meanwhile, continuing claims, which counts the number of people already receiving benefits, fell by 134,000 to 2.59 million.  Continuing claims is also at a pandemic low.  Most economists expect the employment trend to continue.  Corporate economist Robert Frick of Navy Federal Credit Union wrote in a note, “Hopefully, we can quickly resume dropping to the pre-Covid era average of about 200,000.”

A record number of workers quit their jobs in August, signaling more trouble ahead for businesses already struggling to fill roughly 10 million open jobs.  The Bureau of Labor Statistics reported the number of U.S. job openings fell in August, but even more concerning was the record number of people outright leaving their jobs.  The so-called ‘quits rate’ climbed to 2.9% overall and 3.3% for private-sector employees.  Both are at their highest level since the government began tracking the data in 2000.  Altogether, a record 4.27 million people quit their jobs in August.  Meanwhile, the number of job openings across the country fell to 10.4 million in August from a record 11.1 million in July.

The nation’s small businesses reported a pick-up in demand, but shortages of supplies and skilled labor continue to weigh on growth.  The National Federation of Independent Business (NFIB) reported its index slipped a point to 99.1 in September—its lowest reading in six months.  Small businesses report they cannot find enough skilled workers even after raising pay.  More than 50% of small businesses said they couldn’t fill open positions last month, a 48-year peak.  And the number of companies offering higher pay was also at a 48-year high.  The situation doesn’t appear likely to get better anytime soon.  In addition to labor and supply shortages, small business owners now have to worry about government interference.  NFIB chief economist Bill Dunkelberg stated, “The outlook for economic policy is not encouraging to owners, as lawmakers shift to talks about tax increases and additional regulations.”

Business conditions in the New York-region moderated this month according to the New York Federal Reserve.  The NY Fed’s Empire State Business Conditions index fell 14.5 points to 19.8 in October.  Economists had expected a reading of 25.  The new-orders index slipped 9.4 points to 24.3 and the shipments index sank 18 points to 8.9.  Despite the lower readings, respondents stated they were more optimistic about business conditions for the next six months. 

In a surprise to absolutely no one, prices at the consumer level continued to increase in September keeping the rate of inflation at a 30-year peak.  The Bureau of Labor Statistics reported its ‘consumer price index’ (CPI) climbed 0.4% last month.  Higher prices for food, gasoline, and rent drove the advance.  Economists had expected a 0.3% rise.  The pace of annual inflation over the past year edged up to 5.4% in September, more than double the Federal Reserve’s 2% target.  Core CPI, which omits the often-volatile food and energy categories, rose 0.2% last month.  The 12-month increase in the core rate was unchanged at 4%. It had reached a 30-year high of 4.3% in June.  Most economists outside of the Federal Reserve have given up the belief inflation will be ‘transitory’.  Senior economist Ben Ayers at Nationwide wrote in a note, “Extended supply chain disruptions —and potentially further increases in energy costs — are likely to maintain a hot inflation trend through yearend and into 2022 even as pandemic effects slowly ebb.” 

At the wholesale level, inflation rose at its slowest pace in nine months, but all is not good under the surface.  The producer price index climbed 0.5% last month—its smallest gain since December, and a tick below expectations.  Yet the details showed a steep drop in airline fares and an unusual decline in transportation and warehousing costs held down overall producer prices.  However, with ports backed up, truckers hard to find, and limited space on rail cars, analysts view that decline as an anomaly.  Over the past 12 months, wholesale inflation rose to 8.6%.  That’s the highest level since the index was reconfigured in 2010—and likely one of the highest readings since the early 1980’s.

According to minutes of the Federal Reserve’s Sept. 21-22 policy meeting, officials discussed a plan to begin to slow down emergency support for the economy in either mid-November or December.  Fed officials discussed when to slow down the current pace of $120 billion per month in purchases of Treasury and mortgage-backed securities (MBS) that has been underway since June 2020.  The minutes show officials discussed “an illustrative plan” to reduce the asset purchases by $15 billion per month – specifically cutting purchases of Treasuries by $10 billion and MBS purchases by $5 billion.  “Several” Fed officials said they preferred to proceed at a more rapid pace.  Economists expect the Fed to announce a specific plan to taper at the end of its Nov. 2-3 meeting.

Finally:  As prices continue to march higher for food, gas, and just about everything else, everyday people are beginning to realize that maybe inflation won’t be as ‘transitory’ as the Federal Reserve continues to assert.  According to the New York Fed’s Survey of Consumer Expectations, inflation expectations for three years from now jumped to 4.2% - the highest level in the survey dataset – and to 5.3% for one year out.  But expectations for income growth are way behind expected inflation, at just 2.9%.  If these expectations come true, Americans may be forced into a lower standard of living as expenses outrun incomes.  (Chart from Wolfstreet.com)

(Sources: All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet.)

The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The S&P Mid Cap 400® provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500®, measures the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index The Purchasing Managers' Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. One cannot invest directly in an index. Past Performance does not guarantee future results. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.


October 11, 2021

U.S. Markets: Most of the major U.S. benchmarks recorded gains this week, with the large cap S&P 500 recovering a portion of last week’s losses. Energy stocks led the gains as natural gas prices reached record highs in Europe and major oil exporters decided not to increase production. The Dow Jones Industrial Average rose 420 points to finish the week at 34,746—a gain of 1.2%. The technology-heavy NASDAQ Composite ticked up 0.1% to 14,580. By market cap, the large cap S&P 500 finished the week up 0.8%, while the mid cap S&P 400 added 0.2% and the small cap Russell 2000 finished the week down -0.4%.

U.S. Economic News: The number of Americans filing first-time unemployment benefits fell last week, its first decline in a month and a sign the labor market may be improving. The Labor Department reported 326,000 people applied for unemployment—down 38,000 from the prior week. Economists had expected a reading of 345,000. Before the decline, new applications for jobless benefits had risen three weeks in a row. Meanwhile, continuing claims, which counts the number of people already receiving benefits dropped by 98,000 to 2.71 million. That number remains near a pandemic low.

The U.S. economy added just 194,000 jobs in September, as more people chose to drop out of the labor force. The increase in hiring fell well short of expectations of 500,000 new jobs. The private sector added 317,000 workers last month, while state and local governments shed 123,000. Also in the report, the unemployment rate slipped to 4.8% from 5.2% touching a new pandemic low—however, that’s not necessarily a good reading. The majority of the large drop in unemployment was due to 183,000 people leaving the labor force. The percentage of people in the labor force ticked down to 61.6%--almost 2 points below its pre-crisis peak. The lackluster report adds to growing evidence the recovery has slowed. Employment grew the most in the ‘leisure and hospitality’ sector, followed by ‘white-collar professional businesses’ and ‘retailers’. The only sector to report notably lower employment was ‘government’—mostly in public education.

The vast services side of the U.S. economy that dominates the U.S. economy grew slightly in September, suggesting that concerns over the ‘delta-strain’ of the coronavirus were probably excessive.  The Institute for Supply Management (ISM) reported its Services index rose 0.2 point to 61.9 in August. Economists had expected the index to decline to 60.0. Readings above 50 signal expansion, while analysts view readings above 60 as exceptional. Survey respondents stated the biggest problem companies face remains obtaining enough supplies and finding qualified labor to keep up with demand. New orders and production both increased in September and 17 of the 18 industries tracked by ISM were expanding, a historically high number.

Orders for manufactured goods rose in August, exceeding analysts’ forecasts. The Commerce Department reported factory orders rose 1.2% in its latest reading, up 0.5% from July. Economists were expecting a 1.1% rise. In the report, orders for durable-goods (items expected to last at least three years) rose 1.8%, while orders for non-durable goods were up 0.6% in the month. Of note, shipments of factory goods ticked up just 0.1% in August, down sharply from a previous 1.5% gain. Orders for nondefense capital goods excluding aircraft, viewed as a good metric of business orders, rose a revised 0.6% in August, up slightly from the prior estimate of a 0.5% gain.

In August 2020, the Federal Reserve adopted a new framework that made clear the central bank wouldn’t raise interest rates until inflation rose so that it averaged 2% over time. At that time, economists considered that a high hurdle, however the recent surge in prices of goods and services over the past year has now easily cleared that hurdle. Prices have jumped 5.3% over the past year using the better known consumer price index. And they are up 4.3% in the last 12 months using the Fed’s preferred Personal Consumption Expenditure inflation gauge. However, in a speech given this week Cleveland Fed President Loretta Mester addressed the other side of the Fed’s self-imposed “dual mandate”—maximum employment. This part of the Fed’s mandate has not been met, according to Mester. “My forecast is that we’ll meet that [employment] mandate by the end of next year, if things play out as I expect,” Mester said. 

Finally: Pfizer, the world’s third largest pharmaceutical company based on prescription drug sales, is receiving a massive injection of revenue from its COVID-19 vaccine. Pfizer projects that revenue will almost double in 2021 compared to 2020. BNT162b2, as Pfizer’s vaccine is officially called, is expected to account for more than 40% of Pfizer’s revenue for the year, dwarfing any other drug in its vast portfolio. (Chart from statista.com)

(Sources: All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet.)

The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The S&P Mid Cap 400® provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500®, measures the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index The Purchasing Managers' Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. One cannot invest directly in an index. Past Performance does not guarantee future results. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.


October 4, 2021

U.S. Markets: The Dow Jones Industrial Average declined -1.4% closing at 34,326. The technology-heavy NASDAQ declined -3.2% to 14,567. Large caps fell the most this week, with the S&P 500 falling -2.2%. The mid cap S&P 400 closed down -0.6%, while the small cap Russell 2000 declined -0.3%.

September and Q3 Summary: All the major U.S. indexes finished the month of September to the downside. The Dow retreated -4.3% and the NASDAQ shed -5.3%. Large caps fell -4.8%, while mid caps and small caps declined -4.1% and ‑3.1%, respectively. In the third quarter, the Dow ended down -1.9% and the NASDAQ declined -0.4%. Large caps finished up 0.2%, but mid caps gave up -2.1%. Small caps were the biggest losers in the 3rd quarter ending the period down ‑4.6%.

In September, Canada and the UK fell -2.5% and -0.5% respectively, while France declined -2.4% and Germany shed ‑3.6%. On the other hand, September was a good month for Asian markets. China ended the month up 0.7%, while Japan powered ahead 4.9%. For the month, Emerging markets declined -3.9% and Developed markets gave up -3.3%. In the third quarter, Canada declined ‑0.5%, while the UK rose 0.7%. France ticked up 0.2%, but Germany declined ‑1.7%. China closed down ‑0.6%, while Japan managed a 2.3% gain. For the quarter, Developed markets retreated -1.1% and Emerging markets dropped a sizable ‑8.6%.

Gold and Silver declined -3.4% and -8.2% respectively in September, Oil surged 9.5% and Copper finished the month down -6.5%. In the third quarter, Gold ticked down -0.8%, while Silver plunged -15.8%. Oil rose 2.1% and copper declined -4.7%.

U.S. Economic News: The number of Americans filing first-time claims for unemployment jumped last week, hitting a two-month high. The Labor Department reported new claims rose by 11,000 to 362,000 in the week ended September 25th. Economists had expected claims to total just 330,000. Claims jumped the most in California, up by almost 18,000 to 86,792. That state is still working through a large backlog of applications that had yet to be processed. Claims fell in 35 other states. Meanwhile, the number of people already collecting benefits, known as “continuing claims”, dropped by 18,000 to 2.8 million. That number remains near a pandemic low.

After two months of declines, the number of Americans who signed contracts to purchase homes jumped last month, far exceeding economists’ expectations. The National Association of Realtors (NAR) reported pending home sales rose 8.1% in August compared with July. Economists had expected just a 0.4% increase. Still, compared with the same time last year, pending sales were down -8.3% reflecting how much home-buying activity has fallen from late last summer. Every region saw home sales increase on a monthly basis, led by a 10.4% gain in the Midwest. The pending home sales index measures real-estate transactions where a contract was signed but not yet closed.

Home prices rose at a record pace for a fourth consecutive month, rising in virtually every major metropolitan area across the nation. The latest edition of the S&P CoreLogic Case-Shiller Home Price Index showed home prices soared 19.7% from the same time last year. The separate 20-city index, which measures price appreciation among a group of major metropolitan areas across the country, saw a 19.9% year-over-year gain. The three cities to see the largest annual gains remained the same — Phoenix (32.4%), San Diego (27.8%) and Seattle (25.5%). “The last several months have been extraordinary not only in the level of price gains, but in the consistency of gains across the country,” said Craig J. Lazzara, managing director and global head of index investment strategy at S&P DJI, in the report.

The rapid increase in prices isn’t just confined to the real estate sector. The Bureau of Economic Analysis reported this week the cost of goods and services rose sharply again in August putting the inflation rate in the U.S. at a 30-year high. The Personal Consumption Expenditures Index climbed 0.4% in August, its sixth consecutive increase. The rate of inflation over the past 12-months ticked up to 4.3%--the highest it has been since 1991. A separate measure of inflation that strips out volatile food and energy prices rose 0.3% in August. It’s known as the core rate and is viewed by the Fed as a more reliable barometer of inflationary trends. The increase in the core rate over the past 12 months was unchanged at 3.6%, also at a 30-year peak.

Confidence among the nation’s consumers fell for a second month hitting a 7-month low as media reports of a “delta-variant” of the coronavirus and inflation worries weighed on sentiment. The Conference Board reported its closely followed index of consumer confidence slid to 109.3 this month, down 5.9 points from August. Economists had expected a reading of 115.3. Worries about inflation remain high and analysts believe consumers are putting off big purchases because of the higher prices. Furthermore, consumers don’t expect things to improve anytime soon. The part of the survey that assesses how Americans view the next six months was weaker. The so-called “future expectations index” slid 6.2 points to 86.6—its lowest level since January.

Orders for goods expected to last at least three years, so-called “durable goods”, jumped last month and the government revised July’s report to show a significant increase in orders instead of a decline. The Census Department reported orders for durable goods jumped 1.8% last month. Economists had expected just a 0.6% increase. However, analysts noted the big increase was in large part due to a surge in orders for Boeing 737 Max jets and other aircraft. Orders for new commercial airplanes soared 78% in August and drove most of the increase in bookings for U.S.-made durable goods. If transportation is excluded, bookings were up just 0.2%. As has been the case, the biggest problem for manufacturers remains getting critical supplies and finding skilled workers willing to work. Business investment remained robust. Investment rose 0.5% in August and increased for the sixth month in a row. Analysts remain optimistic. Chief economist Rubeela Farooqi of High Frequency Economics wrote in a note, “Momentum is still positive for now.”

A measure of business conditions in the Chicago area slipped to its lowest level in seven months. The Chicago area Purchasing Managers’ Index (or PMI) slowed to 64.7 in September, from 66.8 the prior month. Economists had forecast a reading of 64.3. Still, despite the decline analysts stated activity remains robust. Josh Shapiro, chief U.S. economist at MFR Inc wrote in a note, “Recent results from this survey are very strong and are indicative of solid ongoing growth in economic activity.” Respondents to the survey reported that now freight/shipping difficulties in addition to shortages of supplies of raw materials hampered production.

The international trade deficit rose again as retailers continued to import more consumer goods for the holiday shopping season.  The trade gap in goods widened 0.9% to $87.6 billion in August, the government reported this week. Goods imports increased 0.8% to $236.6 billion, just below the all-time high set in June. Meanwhile, U.S. exports moved up 0.7% to $149 billion to set a new record.

Finally: Initially released just five years ago, video-sharing app TikTok announced this week that the company has hit one billion active users. The billion-user club is very small, with the likes of Facebook, YouTube and Instagram. However, no member of the billion-user club has achieved that status in such a short time as TikTok – just 5 years! This is significantly shorter than the time it took the others to join the club…and works out to an average 16,666,667 new users every single month for the last 5 years. (Chart from chartr.co)

(Sources: All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet.)

The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The S&P Mid Cap 400® provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500®, measures the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index The Purchasing Managers' Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. One cannot invest directly in an index. Past Performance does not guarantee future results. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.


September 27, 2021

U.S. Markets:  The major U.S. indexes overcame an early week sell-off, ending the week essentially flat to modestly higher.  On Monday, the benchmark S&P 500 index recorded its biggest daily drop since early May.  The Dow Jones Industrial Average rose 213 points last week finishing at 34,798—a gain of 0.6%.  The technology-heavy NASDAQ Composite remained essentially flat, adding just 4 points to close at 15,048.  By market cap, the large cap S&P 500 rose 0.5%, while the mid cap S&P 400 added 0.8% and the small cap Russell 2000 finished the week up 0.5%.

U.S. Economic News:  The number of Americans filing first-time unemployment benefits spiked to a one-month high, but the increase appeared to stem largely from California catching up on a backlog of claims, rather than any deterioration in the U.S. economy.  The Labor Department reported initial jobless claims rose by 16,000 to 351,000 in the week ended September 18th.  Economists had estimated new claims would total 320,000.  Earlier this month, claims had tumbled to a pandemic-era low of 312,000.  Before the pandemic claims were consistently in the low 200,000’s.  Continuing claims, which counts the number of people already receiving benefits, rose by 131,000 to 2.85 million.  This number had fallen to a pandemic low the prior week.

Confidence among the nation’s homebuilders improved this month as demand for housing remained strong.  The National Association of Home Builders (NAHB) reported its monthly confidence index increased one point to 76 in September.  The uptick comes following three months of declines in optimism among home builders.  In the details, the index measuring traffic of prospective buyers notched the largest gain rising two points to 61.  The gauge of current sales conditions rose a point to 82.  Expectations of future sales over the next six months remained even at 81.  Analysts noted the housing market, while off its highs, remains robust.  Robert Dietz, chief economist for the NAHB stated in the release, “The single-family building market has moved off the unsustainably hot pace of construction of last fall and has reached a still hot but more stable level of activity.” 

The Census Bureau reported home builders started construction on homes at a seasonally-adjusted annual rate of 1.62 million in August—a 3.9% increase from the previous month.  Compared with the same time last year, housing starts were up 17.4%.  Economists had expected housing starts to occur at a 1.55 million rate.  The gains in August were driven primarily by an uptick in the higher-margin multifamily (apartments and condominiums) sector.  Multifamily starts rose by nearly 22%, whereas single-family starts decreased by roughly 3% on a monthly basis.  Notably, the report showed there were nearly 20% more permits issued for multifamily projects in August as compared with July, but only 0.6% more single-family homes.  Part of the reason builders are focused on more expensive projects is the high costs they continue to endure.  Although lumber prices have dropped from their peak reached earlier this year, the cost of other building materials and labor remain especially high.

Sales of existing homes declined last month as buyers held out for better prices and more options.  The National Association of Realtors (NAR) reported home sales dropped 2% in August, as inventory and price remained major concerns for prospective buyers.  Compared with the same time last year, sales were down 1.5%.  Lawrence Yun, chief economist for the NAR noted in the report that buyers, “are out and about searching, but much more measured about their financial limits, and simply waiting for more inventory.”  The median sales price of an existing home was up nearly 15% year-over-year at $356,700.  Expressed in terms of the months’ supply, there was a 2.6-month supply of homes based on the current pace of sales, unchanged from July.  A six-month supply of homes is generally considered a “balanced” market.

The U.S. economy is still powering ahead despite a reported spread of the “delta-variant” of the coronavirus according to analytics firm IHS Markit.  Business leaders at U.S. manufacturing and services companies are still optimistic about the near future the surveys showed.  However, both sectors reported the inability to find qualified workers or get badly needed supplies continued to pose major roadblocks.  The preliminary “flash” reading of Markit’s services index slid 1.1 points to a 14-month low of 54.4 this month, while the firm’s manufacturing index also dipped to a five-month low of 60.5 from 61.1.  Despite the declines, analysts were still optimistic.  Readings above 50 signify growth and anything above 60 are especially robust.

The Federal Reserve signaled this week it is almost ready to begin tapering its bond-buying program and is considering moving up its timetable for raising interest rates.  Chairman Jerome Powell said the Fed could “easily move” in November to announce its scaling back its bond purchases if the economy continues to make further progress.  He also noted that inflation now sharply exceeds the Fed’s 2% target, though he stuck to his view that inflation is “transitory”.  He said Fed officials think it’s appropriate for the tapering program to be gradual and end “around the middle of next year.”  The Fed has been buying $80 billion in Treasuries and $40 billion in mortgage-backed securities each month since last summer to keep long-term interest rates low and spur demand as the economy recovered from the coronavirus pandemic. 

Finally:  Most people haven’t even begun to think about doing their Christmas shopping; after all it isn’t even Halloween.  But maybe you should.  Retailers attempting to stock up for the holiday selling season are facing all kinds of shortages, transportation chaos, and surging prices.  As analysts at WolfStreet.com point out, the inventory-to-sales ratio (inventories divided by sales, a standard metric of supply, which cancels out the impact of inflation) started collapsing last year.  In May, the ratio hit an all-time low in the data going back to 1992, and has only regained a small amount since.  Memories of 80’s era fistfights over Cabbage Patch Kids dolls come to mind…  (Chart by WolfStreet.com)

The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The S&P Mid Cap 400® provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500®, measures the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index The Purchasing Managers' Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. One cannot invest directly in an index. Past Performance does not guarantee future results. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.


September 20, 2021

U.S. MarketsU.S. stocks ended the week mostly lower as investors weighed positive economic reports with concerns over global supply chains and an inevitable tightening in monetary policy.  The small-cap Russell 2000 managed a slight gain, but the rest of the major indexes finished the week lower.  The Dow Jones Industrial Average ticked down 0.1% to 34,585, while the technology-heavy NASDAQ Composite fell a half percent to 15,044.  By market cap, the large cap S&P 500 gave up -0.6%, the mid cap S&P 400 fell -0.3%, and the Russell 2000 rose 0.4%.

Commodities:  Precious metals sold off despite clear signs of inflation in the economy.  Gold ended the week down ‑2.3% to $1751.40 per ounce, while Silver dropped a larger -6.5% to $22.34.  Energy moved higher.  West Texas Intermediate crude oil rose 3% to $71.82 per barrel.  The industrial metal copper, viewed by some analysts as a barometer of world economic health due to its wide variety of uses, plunged -4.6%--a four-week low.

U.S. Economic News:  The number of Americans filing first-time applications for unemployment benefits rose last week, one week after hitting a pandemic low.  Initial jobless claims rose 20,000 to 332,000 in the week ended September 11th.  Economists had expected new claims to total 318,000.  This latest report is the first since the extra federal benefits for the unemployed expired on September 6th.  Meanwhile, the number of people already collecting benefits, known as “continuing claims”, fell by 187,000 to 2.67 million.  That number is currently at a pandemic era low.  Other than taking into account Hurricane Ida analysts were at a loss for the slight uptick in claims.  Thomas Simons of Jefferies LLC wrote in a note, “Demand for labor remains extremely strong, so there is no fundamental reason why we would see claims move higher.”

Small businesses continue to struggle with major shortages of both labor and supplies according to a closely-followed survey.  The National Federation of Independent Business (NFIB) reported small-business owners were a bit more optimistic about the economy last month, but record shortages of materials and workers are having a significant impact on sales and profits hindering the economic recovery from the pandemic.  The NFIB reported its optimism index rose 0.4 point to 100.1.  Economists were expecting a reading of 99.0.  The lack of supplies stems from major disruptions in global trade tied to clogged ports and rail stations coping with large backlogs.  While the supply bottlenecks are expected to ease, the labor shortage could prove to be a more difficult issue.  Half of all small-business owners said they could not fill open positions—the highest level in the 48-year history of the survey.

The recent surge in prices at the consumer level leveled off in August, however analysts don’t believe Americans are going to get much relief from higher prices anytime soon.  The Bureau of Labor Statistics reported its index of consumer prices climbed 0.3% last month.  Economists had estimated a 0.4% rise.  Over the past year, the rate of inflation stands at 5.3% in August—down a tick from July.  It was the first slowdown since last October.  Aside from the brief oil-driven spike in 2008, consumer prices have risen this year at the fastest pace in three decades.  Another closely watched measure of inflation that omits food and energy, so-called “core inflation”, rose just 0.1%.  That was the smallest increase since February. 

Sales at U.S. retailers rose sharply in August, a sign that consumers continued to spend despite the media reports of an uptick in the spread of the ‘delta-variant’ coronavirus.  The Census Bureau reported retail sales increased 0.7% last month.  The consensus forecast was for a -0.7% decline.  Sales advanced in almost every major retail category in August, and they rose an even stronger 1.8% if autos are excluded.  Compared to the same time last year, retail sales were up 15%.  Some analysts were quick to point out that part of the increase reflects the higher prices consumers are paying, particularly for groceries and building materials.  Chris Low at FHN Financial summed up the report noting, “All in all, this was a solid showing by U.S. consumers, expected by no one, suggesting the economy continued to hum in August.”

Business activity in the New York-region soared this month according to the New York Federal Reserve.  The NY Fed’s Empire State business conditions index surged 16 points to 34.3 the regional bank said this week.  Economists were expecting a reading of only half that.  The new orders index jumped 18.9 points to 33.7, while the shipments index soared 22.5 points to 26.9.  Both prices paid and prices received were at or near record highs in September.  And business leaders expect the strength to continue.  The sub-index of what the business leaders expect for the next 6 months also came in very positive. 

Finally:  In December of 2019 then-candidate Joe Biden famously told a crowd in a hard-hit coal mining town to “learn to code” in order to transition to “the jobs of the future”.  While there has probably never been a better time to be looking for a job in the United States, it was bad advice then and even worse advice now.  Recent data from the Bureau of Labor Statistics showed that while job openings in Manufacturing and Leisure and Hospitality have surged 103% and 88% since mid-2019, respectively, jobs in the Information sector are second from the bottom—up just 11% in two years.  (Data from Bureau of Labor Statistics, chart from chartr.co)

(Sources:  All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet.)

 

The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The S&P Mid Cap 400® provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500®, measures the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index The Purchasing Managers' Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. One cannot invest directly in an index. Past Performance does not guarantee future results. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.



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