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Weekly Market Recap

Last week’s biggest news was Senate Republicans offering (and Democrats accepting) an agreement to raise the US national debt ceiling by $480 billion, eliminating the near term risk of a technical default on US Treasuries and giving Democrats time to pass a budget reconciliation bill with a new debt ceiling limit that would alleviate the risk until sometime after the 2022 midterm elections.

Stocks rallied on the news, with cyclicals outperforming while defensives lagged. The energy sector was a standpoint performer with a 5.0% return on the week. International stocks were higher, particularly emerging markets which benefitted from a strong rebound in Chinese equities on Thursday and Friday.

Bond yields also moved higher in the wake of the debt ceiling agreement. 10y Treasuries finished the week at 1.61%, the highest level since early June. IG spreads were largely unchanged while HY spreads tightened. Energy prices rose again last week. US benchmark West Texas Intermediate finished at a 7-year high, just shy of $80/barrel. The move in crude sent gasoline prices to fresh multi-year highs as well. Meanwhile, natural gas hit a 14-year high on Tuesday before easing back in the latter half of the week.

Finally, the monthly payroll report from the Bureau of Labor Statistics missed expectations with 194k nonfarm payrolls added versus consensus estimates of 500k, calling into question whether the Fed will announce asset purchase tapering at its upcoming meeting in early November.

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Weekly Market Recap

September ended on a challenging note, with Treasury yields moving higher and equity prices falling as the month drew to a close. The first trading day in October provided a respite, as yields stabilized and equities rebounded to begin Q4 with solid gains. The energy sector was a bright spot last week, delivering a 5.8% return thanks to rising oil prices. International stocks underperformed, with softness in developed and emerging markets. Chinese equities were stable.

Bond prices finished the week lower across Treasuries, munis, and corporates. With credit spreads already near multi-decade tights, they have limited room to compress to offset any material increase in Treasury yields. See the Chart of the Week for a time series of IG & HY spreads.

Oil & gas prices rose to fresh pandemic highs last week, as government officials in Beijing ordered state-owned energy companies to stockpile supplies for the coming winter at all costs. Other commodities echoed the trend in rates and equities, softening for most of the week before rallying on Friday.

Economic news was mixed last week. Initial jobless claims rose, consumer confidence softened, and Wards total vehicle sales fell more than economists expected. On a most positive note, durable and capital goods orders rose more than expected in August data, while the ISM manufacturing index (including the new orders component) exceeded consensus estimates for September.


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Weekly Market Recap

The story of last week was rising bond yields, which ratcheted higher on Thursday and Friday in the wake of Wednesday afternoon’s FOMC statement and the ensuing press conference. While in Albion’s view the Fed’s message was consistent with prior statements regarding the condition of the economy and progress towards its dual mandate, some investors may have hoped that the mild market selloff during the first half of September would have prompted a more dovish turn in the Fed’s policy outlook. Those investors appear to be disappointed that the Fed has largely stayed the course, and they have responded by pushing bond yields to their highest levels since the end of Q2. By week’s end, 2y Treasury yields were up 5bp, 10y yields up 9bp, and 30y yields up 8bp.

In conjunction with rising rates, shorter-duration equity benchmarks like the Dow and small/mid cap indices outperformed the longer-duration Nasdaq. Meanwhile, international indices were once again pulled lower by China, where investors continue to watch the unfolding Evergrande saga with great interest.

Economic news was mixed last week. Housing activity remains strong, with starts and permits both rising sequentially in August from already-robust levels. New home sales rose as well, with existing home sales in line with consensus estimates. Conversely, initial jobless claims rose for the second consecutive week, and manufacturing surveys from the Chicago Fed, Kansas City Fed, and Markit all came in below expectations.

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Weekly Market Recap

Mid-September is often a period of heightened volatility thanks to the expiration of many options and futures contracts, and this year is no exception. After a very strong first 8 months of 2021 that saw the S&P 500 up more than 20% YTD, normal seasonality has resulted in a modest pullback so far this month.

Despite last week’s softer market tone, incoming economic data was mostly positive. Inflation data was better than feared, with core CPI increasing just 0.1% sequentially in August, and falling to +4.0% y/y. Import prices echoed this trend, showing a small sequential decline in August. The Empire Manufacturing Survey and Philly Fed Business Outlook were both stronger than expected. And finally, retail sales exceeded expectations, rising in August after falling slightly in July.

Apple held its virtual fall product event, with CEO Tim Cook presenting the iPhone 13 and Watch 7. Both devices feature incremental improvements relative to previous models. Apple chose to keep its iPhone price tiers unchanged, despite rumors of input cost pressures coming from some component suppliers.

Most US equity benchmarks finished lower for a 2nd consecutive week, with no clear pattern across sectors and market caps. International benchmarks were pulled lower by the renewed selloff in Chinese equities.

Treasuries fluctuated on the back of moderating inflation data. 10y yields finished the week 2bp higher, while 30y yields closed 3bp lower. Credit spreads compressed slightly, taking their cues from incoming economic data.


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Weekly Market Recap

Risk assets struggled through the holiday-shortened work week as new case counts continued to rise in the US. In an effort to improve workplace safety, the Biden Administration announced on Thursday that the Department of Labor would direct all companies with more than 100 employees to require vaccines or weekly negative tests. The constitutionality of this directive was immediately called into question by several Republican governors.

Economic news was fairly encouraging. Initial jobless claims fell to a pandemic low of 310k, and the Job Openings and Labor Turnover Survey showed a record 10.9 million jobs available. Producer price inflation (PPI) remained elevated on a y/y basis at +8.3%, but with a smaller sequential gain in August relative to July.

Despite solid economic news, US equities finished lower across all sectors and market caps. Small caps underperformed, as did real estate stocks in a reversal of recent strength. International stocks also fell, albeit to a lesser degree.

Bond markets were little changed. 10y Treasury yields rose 2 basis points, while 30y yields fell by a basis point. Investment grade credit spreads rallied as a rampup in new corporate issuance was met by more-than-ample demand.

In commodity markets, oil and natural gas both finished higher in the aftermath of Hurricane Ida, with natural gas briefly eclipsing $5/MMBtu for the first time since early 2014. Away from the energy complex, most other commodity prices were little changed. Inflation hedges (chiefly gold & bitcoin) fell.

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Weekly Market Recap

News flow was sparse last week as much of Wall Street wrapped up summer holidays ahead of the 3-day weekend. The most significant economic data point was the monthly jobs report, which showed disappointing job growth relative to consensus estimates:

* Nonfarm payrolls added = +235k (consensus estimate = +733k)

* U-3 Unemployment rate = 5.2% (previous month = 5.4%)

* U-6 Underemployment rate = 8.8% (previous month = 9.2%)

* Avg Hourly Earnings y/y = +4.3% (previous month = +4.1%)

Other economic data was mixed. On the positive side, unemployment claims fell, services and manufacturing PMIs remained solidly in expansionary territory, and construction spending rose. On a more challenging note, the Conference Board’s Consumer Confidence Index fell significantly in August, a move that was presaged by a similar decline in the Univ. of Michigan gauge earlier in the month.

As a result, equity markets took a somewhat more cautious tone last week, with defensive sectors (real estate, healthcare, staples, and utilities) rallying while cyclicals (industrials, materials, energy, and financials) pulled back a bit.

In bond markets, the US Treasury yield curve steepened in response to the payrolls miss, as investors pared back their assumptions about near term tapering and rate hikes while also adjusting longer term inflation expectations slightly. Investment grade credit spreads were stable.

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Weekly Market Recap

Kabul notwithstanding, there were two events that moved markets last week:

* On Monday, the FDA gave official approval for Pfizer’s covid-19 vaccine. In response to this development, many companies and government agencies announced vaccine mandates, a step that should help raise vaccination rates nationally and reduce the spread of the virus.

* On Friday, Fed Chairman Jerome Powell successfully walked the line in his Jackson Hole speech, acknowledging that progress had been made towards full employment, expressing the view that longer-term inflation risks are manageable, teeing up asset purchase tapering to begin later this year, and underscoring that tapering does not start a ticking clock on a rate hiking cycle.

Stock investors responded favorably. Cyclicals and small/mid caps led the rally, while the S&P 500 and Nasdaq both finished the week at record highs. Notably, this was the 52nd record closing high in the S&P 500 so far in 2021.

International stocks were better as well, led by a rebound in China following the eradication of local virus transmission after a month of lockdowns.

Treasury yields finished higher on the week, although they retraced part of this move after Jerome Powell’s speech on Friday. Credit spreads tightened.

Oil was a major beneficiary of the cyclical rally, closing higher by nearly $6.50 on the week. Other commodities were higher as well. The US dollar weakened.


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Weekly Market Recap

US equities started strong on Monday and finished strong on Friday, but the 3 days in between were challenging and left all major US indices in the red for the week. Escalating covid-19 case counts in the US and potential trade disruptions from new lockdowns in China caused investors to reign in risk. Among US large caps, the biggest casualty was the energy sector which fell 7%. Traditional defensive sectors rallied, including utilities, healthcare, and real estate. Small and midcap stocks underperformed, as they often do when risk aversion rises.

International markets continue to be dominated by China. Driven by the twin concerns of rising regulation and slowing economic growth, the MSCI China Index finished at YTD lows after falling 7.7% on the week, and is now down nearly 33% from its February highs. See the Chart of the Week for a time series.

Bond markets were mixed last week. Treasuries rallied and credit spreads widened, driving price gains in safer bonds and declines in riskier ones. Oil prices fell sharply for the second consecutive week, and are now down nearly 17% from the highs of mid-July.

Economic news was mixed last week. On the positive side, jobless claims fell, industrial production and new residential building permits rose, and the Conference Board’s Leading Economic Index (LEI) posted a solid gain for the 5th consecutive month. On the other hand, housing starts and retail sales both dropped more than economists expected in July data.


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Weekly Market Recap

Last week saw solid gains in the S&P 500 and the Dow, both of which closed at new all-time record highs on Friday. The Nasdaq pulled back slightly, driven in part by some mid-week softness in biotech. Small and midcap stocks were mixed.

Internationally, most developed market equities were stronger, while emerging market equities in aggregate were lower. Chinese stocks rallied early in the week, only to be met by renewed selling pressure on regulatory fears as the week progressed. MSCI’s China Index finished the week essentially unchanged.

Bond yields moved higher early in the week before falling abruptly on Friday in the wake of a significant decline in the University of Michigan’s consumer sentiment gauge. In the end, 10y and 30y Treasury yields both finished the week 2 basis points lower than where they started. Investment grade credit spreads held firm, while high yield spreads moved wider.

Economic data was plentiful last week:

* The JOLTS report showed more than 10 million US job openings

* Headline CPI held steady at +5.4% y/y (+4.3% ex food and energy)

* PPI rose to +7.8% y/y (+6.2% ex food and energy)

* Initial jobless claims fell for a 3rd straight week, to 375k

* U of M Consumer Sentiment fell to 70.2 in August, a new pandemic-era low

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Weekly Market Recap

Equities moved modestly higher around the world last week, with gains in the 1% range across market caps and geographies. A steeper yield curve benefitted financials, which delivered the best return amongst S&P 500 sectors at +3.6% on the week. All other sectors finished in positive territory with the exception of consumer staples, which was used as a source of funds by investors adding risk.

Bond markets were weaker, particularly after Friday’s stronger-than-expected monthly payrolls report. Yields moved higher across the curve, with the 10-year rising 8 bp on the week. Investment grade credit spreads were stable, while high yield spreads compressed, muting the price decline in riskier corporate bonds.

Oil prices moved lower last week on concerns regarding slowing demand from China. Precious metals were also lower. Meanwhile, natural gas prices rose on elevated demand for cooling products, and US gasoline pump prices rose to a fresh 6-year high thanks to a busy summer driving season.

Economic news was dominated by the monthly nonfarm payrolls report for July, which was strong across the board:

* Nonfarm payrolls = +943k (est. +870k)

* U-3 Unemployment Rate = 5.4% (est. 5.7%)

* U-6 Underemployment Rate = 9.2% (est. 9.8%)

* Avg hourly earnings y/y = +4.0% (est. +3.9%)

* Labor force participation = 61.7% (prev. 61.6%)


This audio version of the Weekly Market Recap can be found in your favorite podcasting app. Search for “Albion Financial Group”