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Market Commentary for the week ending September 4th, 2021
- The August employment report disappoints with only 230,000 new jobs added in the month.
- Markets gained ground around the world with international markets outpacing those in the U.S.
- Several economic indicators, excluding the employment report, suggest the economy remains very strong.
This Week’s Performance Highlights
- Stocks rallied worldwide although U.S. markets lagged behind. At the close of the week large U.S. stocks, as measured by the S&P 500, were up +0.6%. The NASDAQ Composite, helped by big names such as Apple (AAPL), Amazon (AMZN), and Tesla (TSLA) all having a good week, gained +1.6% while the Dow Jones Industrials actually slipped -0.2%. Small U.S. stocks gained as well up +0.7%.
- The financial sector, one of the best year-to-date performers, turned in the worst performance for the week losing -2.4% but still holds onto a +30.2% gain for 2021. The accompanying table shows some of the worst performers for the week including Wells Fargo (WFC) impacted by news it may face new sanctions by regulators due to its slow response to prior issues.
- Growth stocks have been outpacing the performance of value stocks for many years. There had been some talk earlier this year that maybe this long-term trend was reversing given the significant outperformance value stocks had over growth stocks as illustrated in the accompanying graph (orange line ahead of the blue line). The strong start for value stocks in 2021 started to fizzle in May while growth stocks continued to climb once again leaving growth stocks ahead for the year.
- International stocks outperformed U.S. markets with developed country stocks higher by +1.7% for the week. The performance was helped by a big gain in Japan of +5.4% on news that Japanese Prime Minister Yoshihide Suga will not be running in the upcoming leadership election.
- Emerging markets also performed well gaining +3.0% on average fueled by a second consecutive week of strength in China’s markets up another +3.3% for the week and +7.2% from August lows.
- The alternative assets were all higher as well with real estate stocks performing the best gaining +3.1% for the week and now higher by an impressive +33.7% in 2021. Gold gained +0.5% and commodities were up +0.3%.
- Bond prices slipped fractionally down -0.1% leaving the yields on the 10-year U.S. Treasury bond little changed closing at 1.326%.
According to a survey by Fannie Mae, the government-sponsored agency helping support the home mortgage market, a record 66% of respondents say that it is a bad time to buy a home. This sentiment is arguably being fueled by the massive surge in housing prices, read more below, and occurring in spite of near record low interest rates.
The cost of moving freight is resulting in nearly unheard-of signing bonuses for truck drivers of up to $20,000! The bonus is fully paid over just 18 months in what some are describing as a once in a career opportunity. Such deals are occurring in many industries as companies struggle to find enough workers to meet the demands of our booming economy.
New Nonfarm Payroll: 235,000
Employers added far fewer new jobs that expected in August coming in at just 235,000 versus economists’ estimates of 720,000. In a likely reaction to the spread of the COVID variant, the leisure and hospitality sector added no jobs for the month after several months of big gains. Further dampening the results is simply a lack of workers which many believe could start to ease after extra unemployment benefits expire and kids go back to school. The unemployment rate fell to 5.2% from 5.4%.
Average Hourly Wages +0.6%
Average hourly wages, reported in the monthly employment report, jumped +0.6% for the month, twice the pace forecast by economists, and are now higher by +4.3% during the past 12 months. The data is starting to normalize following the shocks brought on by COVID and, as the accompanying graph illustrates, the rate of change is meaningfully higher than pre-COVID. The Federal Reserve continues to suggest that these inflationary pressures will be temporary and return to levels closer to +2% once supply catches up with demand.
Case-Shiller National Home Price Index: +18.6%
Home prices are up a record-setting +18.6% over the 12 months ending in June fueled by continued lack of inventory and the low cost of borrowing. Some of the biggest gains have been recorded in Boston, Charlotte, Cleveland, Dallas, Denver, and Seattle. It is widely believed that this pace of rising prices will slow but there still seems to be meaningful demand from buyers.
Consumer Confidence Index: 113.8
The rapid spread of the COVID variant and rising inflation caused a drop in consumer confidence to an index reading of 113.8 from 125.1. This big drop came as a surprise to economists who had forecast a reading of 123.1. In spite of this drop in reported confidence, consumer spending has not eased in the last two months making some believe this drop is likely only temporary.
ISM Manufacturing Index: 59.9%
The Institute for Supply Management (ISM) reported its manufacturing index up slightly from the month before at 59.9%. Any reading above 50% indicates growth. Demand for goods remains strong as a lack of both supplies and workers continues to be the biggest challenge for companies.
ISM Service Index: 61.7%
According to the ISM Services Index, the services sector slowed a bit in the month of August but still remains very strong with a reading of 61.7%. Much like the manufacturing sector, supplies and lack of workers continue to be the biggest constraints on growth with demand remaining very strong. Most executives polled for this index suggested the spread of the COVID variant had little impact on their business.
Upcoming Economic Reports
- Job Openings
- Produce Price Index
- Initial Jobless Claims
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