Hello, this is Tom Jalics, Chief Market Strategist at Fifth Third Bank
The three major U.S. benchmarks all ended the week in the red amid a growing pessimistic outlook. The S&P 500 Index was down 1.7% as it had its first five-day pullback since February. The NASDAQ declined by 1.6%, and the Dow Jones Industrial Average was down 2.1%. The U.S. 10-year treasury yield ended the week at 1.34%, up two basis points from the previous Friday’s close. Gold was down 2.2%, ending the week at $1,788/oz. West Texas Intermediate Crude Oil rose 0.4% to end the week at $69.56/barrel.
There were continued worries about the degree to which the Delta variant could slow the economic recovery, worries made more concrete as companies releasing updates on cost pressures or supply chain constraints during second quarter earnings releases. Additionally, expectations for the Federal Reserve to begin reducing its $120 billion per month in asset purchases this year also firmed, with multiple Fed officials last week expecting to taper despite the big miss from the August nonfarm payroll report. There was also attention on the difficult path ahead for Democrats' $3.5 trillion stimulus package, and the prospect of higher taxes should it be passed. China concerns, stretched valuations, declining retail participation, and September seasonality were also cited as reasons for last week’s sell off.
The economic calendar was busy last week with the upside surprise in initial jobless claims as the highlight. U.S. producer prices (PPI) increased more than anticipated in August. The PPI for final demand grew 0.7% from July and 8.3%, the largest on record, from a year ago. Costs have risen for a variety of reasons including materials shortages, shipping constraints and labor expenses. Initial Jobless Claims and Continuing Claims were 310,000 and 2.783 million, respectively. Jobless claims came in below estimates of 335,000 and continuing claims were modestly above expectations of 2.740 million. The initial jobless claims figure was a new pandemic low, signaling the Delta variant has not caused layoffs. Additionally, the Job Openings and Labor Turnover Survey report rose to an all-time high of 10.9 million openings. There are now more job openings than people looking for work in the U.S. The lack of staffing has made it hard for businesses to meet robust demand for job openings.
In the week ahead, OPEC will release its monthly Oil Market report, which helps investors gauge the major issues affecting the oil market. Apple will hold an event on Tuesday, which is expected to be its biggest launch event of the year. Philip Lane, European Central Bank Chief Economist, will speak at the Institute for Monetary and Financial Stability webinar about the Bank’s strategy review. Hong Kong is expected to start allowing visitors from China to skip strict quarantine procedures. This is a big step toward re-opening with the mainland and sparking the economy. Friday, quarterly expiration of futures and options on indexes and stocks occur on the same day, which may result in more volatility and trading. Finally, U.S. economic releases that will be monitored this week include the Consumer Price Index, Empire Manufacturing, Industrial Production, and University of Michigan Consumer Sentiment.
As always, we will be watching and reporting to you next week. Thank you.