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Market Commentary for the week ending October 9th, 2021
- The September U.S. employment report showed jobs growth slowing.
- Bond yields jumped to their highest level since June as investors anticipate higher rates.
- Stocks were volatility closing the week mixed.
This Week’s Performance Highlights
Stocks were relatively volatile during the week with the Dow Jones Industrial Average swinging an average of 453 points per day or more than 1.3%. The volatility is being driven in part by bond yields rising, a drop in COVID cases possibly fueling economic growth while at the same time investors are trying to measure the impact of businesses fighting supply-chain issues and an inability to hire workers.
- At the close of the week large U.S. stocks were higher by +0.8 as measured by the S&P 500. The Dow Jones Industrials performed better gaining +1.2% helped by stocks such as UnitedHealth Group (UNH) and Nike Inc. (NKE).
- The NASDAQ Composite’s performance lagged other large stock indexes up just +0.1% for the week and +13.5% for the year as compared to the S&P 500’s 2021 gain of +16.9%.
- Contrary to large stocks, U.S. small stocks were down -0.3%. This underperformance could be the result of concerns about higher borrowing costs in the future which would likely impact smaller companies more so than large.
- 8 of the 10 sectors we follow were higher with Energy stocks, by far, leading the way gaining +5.1% for the week and now higher by a staggering +54.3% year-to-date. In spite of this huge 2021 gain, the sector remains -44% BELOW its 2014 highs as illustrated in the accompanying graph. Furthermore, energy stocks have only gained about half the return of the S&P 500 since the late ‘90s.
Source: www.YCharts.com ETF symbol XLE
- International stocks were mixed with developed country markets, on average, lower by -0.3%. The results among developed markets were wide ranging with Japan’s market down a sizeable -3.1% while stocks in Australia gained +2.1%.
- Emerging markets were higher by +1.0% fueled by a jump in the Chinese market by +3.4% although it remains down -13.7% for the year.
- Commodities were the big winners among the alternative asset classes gaining +2.8%. Real estate stocks were higher by +0.4% and gold was down -0.2%.
- Bonds had a rough week with prices falling by -0.8% bringing their year-to-date loss to -2.3%. The losses were widespread among all types of bonds although low quality high yield bonds held up a bit better than the benchmark 10-Year U.S. Treasury whose yield closed at 1.613% compared to 1.463% the week before. Investors appear to be expecting higher interest rates in the future.
The price of a ton of coal has skyrocketed since the pandemic lows last year hitting an all-time record high on October 5th up +498% through Friday! According to one report it has been increased demand, supply-chain disruption, and higher prices for other energy producing materials that have fueled this massive gain. Mining companies are struggling to keep up due to a shortage of workers. Time will tell if this price gain is a short-term shock or if prices have reached a new elevated level.
According to study by Zillow, a leading online real estate marketplace that tracks the prices of homes sold and much more, the price of you home may be impacted by its proximity to a Starbucks! Between 1997 and 2014, homes located within 0.25 miles of a Starbucks increased in price by +31% MORE THAN the average home (a gain of +96% compared to the average gaining +65%). The color of your kitchen and bathrooms apparently can influence the price as well as features such as having barn doors.
New Jobs in September: 194,000
The September U.S. employment report showed the economy adding 194,000 new jobs during the month. This came in well below economists’ estimate of 500,000 and shy of the prior month’s 366,000. Although this was disappointing, it was the public sector that performed the worst actually losing 123,000 jobs while the private sector added 317,000.
Companies are eager to hire more workers but are having a difficult time finding new hires. Fueling this problem has been the shrinking of the labor force as illustrated in the accompany graph. In September 183,000 people left the labor force or, in other words, stopped looking for a job. Compared to pre-pandemic levels, the labor force is down by nearly -3.1 million people and showing no signs yet that this will improve anytime soon.
The combination of the shrinking labor force and the new jobs added in the month drove the unemployment rate down to 4.8% from 5.1% the month before.
ISM Services Index: 61.9%
The Institute for Supply Management (ISM) Services Index rose slightly from the month before to 61.9% coming in ahead of expectations. Any measure above 50% indicates growth. Seventeen of the eighteen industries tracked by the index showed growth, an historically high number, including restaurants, retailers, and travel. The continued and somewhat accelerating growth in the services sector suggests the damage done by the delta variant is fading.
Factory Orders: +1.2%
The manufacturing sector is also performing well with factory orders accelerating from the month before increasing by +1.2% in the most recent month. Furthermore, the prior month’s report was revised from an original estimate of +0.4% to +0.7%.
Upcoming Economic Reports
- Consumer Price Index
- Producer Price Index
- Retails Sales
- Initial Jobless Claims
- Consumer Sentiment Index
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