Hello, this is Tom Jalics, Chief Market Strategist at Fifth Third Bank
The major U.S. equity benchmarks ended the month of September with a whimper. The Dow Jones Industrial Average fell 1.4% for the week, the S&P 500 dropped 2.2%, and the NASDAQ declined by 3.2%. Despite recent weakness, U.S. stocks have enjoyed gains through the first three quarters of the year with the Dow Jones up 12.1%, the S&P 500 up 15.9%, and the NASDAQ up 12.7% through the end of September. The U.S. 10-year Treasury yield ended the week at 1.47%, down two basis points from the previous Friday’s close. Gold was up 0.5%, ending the week at $1,759/oz. West Texas Intermediate Crude Oil rose 2.4% to end the week at $75.74/barrel.
There were a number of factors cited for last week’s equity market retreat. The speed and magnitude of a bond yield backup was a widely cited drag, particularly for growth investments. Washington looked increasingly messy with complications for additional fiscal stimulus and the lack of a clear path to a debt ceiling raise. China was another overhang with concerns shifting from an Evergrande contagion to an energy crunch. Supply chain and input price pressures continued to dominate corporate narratives. However, it was not all bad news last week. Fed leadership continued to stress the difference between tapering and tightening, along with expectations that price pressures will be transitory. Corporate updates continued to point to robust demand. Finally, COVID-19 cases in the US continued to trend lower.
The domestic economic calendar was busy last week. GDP grew at a 6.7% annualized rate in the second quarter, which was a revision higher from the prior reading of 6.6% growth. Personal consumption, which makes up nearly 70% of GDP, was revised slightly downward to an 11.9% annualized rate, but still exhibiting a robust recovery. Initial Jobless Claims and Continuing Claims were 362k and 2.802 million, respectively. Jobless claims came in above estimates of 330k along with continuing claims above expectations of 2.79 million. A bit a disappointment, likely due to the rise COVID-19 cases during the examination period. Wholesale inventories in the U.S. rose 1.2% month-over-month, ahead of estimates of 0.8% in August. This coincides with the growing concern on bottlenecks in the global supply chain. Pending Home Sales was 8.1% month-over-month in August, far above estimates of 1.4%. The 7-month high comes as prospective buyers welcomed more attractive pricing. Finally, core personal consumption (PCE) expenditures, the Fed's preferred measure of inflation, rose 3.6% year-over-year, consistent with the measures of the previous two months. This measure remains persistently high, despite the Federal Reserve’s insistence that inflation remains "transitory".
In the week ahead, all eyes will be on Washington as officials from both parties try to work out a number of disagreements concerning the debt ceiling, infrastructure plan, and more. The OPEC+ group will meet to review their oil output policy this week as areas across the globe are facing an energy crunch. Chinese stock markets will be closed until Friday after their Golden Week holidays. Finally, there are a number of domestic economic releases including Factory and Durable Goods orders, the Trade Balance, Services PMI, the ADP Employment Change report, and the BLS Jobs report.
As always, we will be watching and reporting to you next week. Thank you.