By Claire Rubin, Private Bank Investment Strategist, Fifth Third Bank.
Hello, this is Claire Rubin, Private Bank Investment Strategist at Fifth Third Bank with this week’s Economic Beat.
Major U.S. equity indices rose to record highs last week. Investors were encouraged by continued strong earnings results, accommodative monetary policy, and robust economic data. The benchmark S&P 500 Index rose for a fifth consecutive week, adding two percent in total return. The tech-heavy Nasdaq gained 3.1% and the blue-chip Dow Jones Industrial Average added 1.4%. International equities were also higher with the MSCI All Country World Index rising 1.6% for the week. Treasury yields declined, with the yield on the 10-year U.S. Treasury down 10 basis points to end the week at 1.45%.
Nearly 90% of S&P 500 companies have now reported results for the third quarter. According to data from FactSet, earnings results have come in more than 10% above expectations. Supply chain constraints continue to be a primary theme among corporate commentary.
The Federal Reserve (the Fed) met for its November meeting and announced tapering of asset purchases at a pace of $15 billion a month, as was highly anticipated. If economic forecasts change, the U.S. central bank said it would be prepared to adjust tapering as necessary. Officials voted to hold interest rates unchanged, also in line with expectations. The Fed still expects pandemic and reopening-related supply chain pressures to ease and inflation to moderate, though the language in the Fed’s statement suggested more uncertainty on the transitory nature of inflation. At Fifth Third, we believe the biggest risk to markets today is a fundamental or economic surprise, not Fed policy. The market reaction to last week’s Fed meeting reinforces that we do not expect a "taper tantrum"—the taper is already built in. The markets, if anything, may already be braced for a more rapid Fed tightening based on inflation concerns.
In economic news, the Institute for Supply Management’s Manufacturing Purchasing Managers’ Index, or PMI, came down modestly for October but remains well above the level of 50 than indicates expansion in the sector. The Non-Manufacturing PMI rose to a record high. The highlight of the week was the Bureau of Labor Statistics monthly employment situation report. Nonfarm payrolls rose by 531,000 in October, the most since July and well ahead of expectations. The unemployment rate dipped to 4.6%, while labor force participation held steady at 61.6%. Wage gains quickened to a 4.9% pace year-over-year, as anticipated. Payroll gains were led by leisure and hospitality amid an easing of COVID-19 cases. We have recouped 81% of the jobs lost between February and April of 2020 with total employment now 2.8% below the pre-pandemic level.
In the week ahead, all eyes will be on the October consumer price index report, a key inflation measure forecasted to show an increase. U.S. bond markets are closed Thursday in observance of Veterans Day, though the stock market remains open. On Friday, the Job Openings and Labor Turnover Survey, or JOLTS report, may provide more insight into the tightness of the labor market.
As always, we’ll be watching and reporting back to you. Thank you.