Hello, this is Tom Jalics, Chief Market Strategist at Fifth Third Bank.
U.S. equities fell last week, sending the S&P 500 Index lower for a second straight week, the first back-to-back weekly declines for the benchmark index since late April/early May. The Nasdaq saw its worst weekly drop since March, finishing 10% below its September 2nd all-time closing high.
The S&P 500 Index ended down 2.5% in total return for the week. While the Dow Jones Industrial Average fell 1.6% and the tech heavy Nasdaq 100 index declined by 4.1%. Treasury yields were modestly lower, with the 10-year U.S. Treasury yield ending the week down 5 basis points to 0.67%. West Texas Intermediate (WTI) Crude Oil slumped 6.2% to end the week at $37.31 per barrel. Gold gained 0.3%, ending the week at just over $1,940/ounce.
The tech selloff continued to drag major indices lower last week with many strategists pointing to elevated valuations and positioning within the sector. Market action pushed the Nasdaq into correction territory just days after setting a fresh record the week before. Overall financial market themes largely remain the same as tailwinds include continued historic monetary policy support, improving economic data, and better trends in US COVID-19 cases. Headwinds continue to include elevated vaccine expectations, rising skepticism over the next COVID-19 fiscal relief bill, US and China tensions, and cautious labor market signals. Progress on the next fiscal stimulus bill was limited, as Democrats and Republicans remain far apart on key issues. The White House appears ready to explore more executive actions, as odds increase that Congress may not reach a deal this month. Vaccine updates were mixed last week. Executives of nine major drug companies pledged to not seek regulatory approval for their vaccines before safety and efficacy has been established.
Domestic economic data remained relatively upbeat last week. The NFIB's small business optimism index rose more than expected for August, boosted by an uptick in business owners' job creation plans. Still, owners remain uncertain about the future, results showed. The JOLTS job openings and labor turnover survey showed job openings increased for a third straight month in July. The figure was better than economists had forecast. Producer prices rose by more than anticipated last month, pointing to a rebound in demand from the pandemic-related lockdowns. A more closely watched measure of inflation, the Consumer Price Index (CPI) also rose ahead of expectations. Core CPI was up 1.7% in August from a year earlier. Jobless claims was a less encouraging data point. The weekly release that measures the number of Americans applying for unemployment benefits was flat from the prior week at 884,000 claims. Consensus called for a drop to 850,000. The reading underscores the uneven nature of the recovery in the labor market.
In the week ahead, the Federal Reserve, Bank of England (BOE), and Bank of Japan (BOJ) all set monetary policy. Fed watchers are hoping for guidance on the path for interest rates ahead, even after Fed Chair Powell's speech last month set the tone for a long period of low rates. Analysts expect officials may link future rate hikes to inflation outcomes, though the guidance may not come at this meeting. The Fed announcement is set for Wednesday. The BOE and BOJ announce their decisions on Thursday. No changes are expected. On the domestic economic calendar, we will be monitoring releases on industrial production, retail sales, and housing starts.
As always, we’ll be watching and reporting back to you next week. Thank you.