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Weekly Market Recap

Weekly Market Recap November 12th, 2021Download

Most US equity indices finished the week slightly lower, due in large part to a higher-than-expected consumer price inflation (CPI) print for the month of October. Core inflation (ex food and energy) rose to 4.6% y/y, while headline inflation exceeded 6% for the first time since 1990. See the Chart of the Week for a time series of headline and core CPI.

Sector performance was mixed: basic materials (+2.6%) significantly outperformed, and four other sectors (healthcare, industrials, financials, and tech) finished with positive returns on the week. Other sectors finished lower on the week, with energy (-1.3%) and consumer discretionary (-3.2%) trailing by the widest margin. International stocks were mixed, with MSCI’s developed market index easing lower while its emerging markets index posted solid gains due to strength in Chinese equities.

Bond yields moved higher in the wake of the inflation print, particularly in the front end and belly of the curve: 2y and 10y yields both rose 11bp on the week, while 30y yields were up a more modest 4bp. Credit spreads were mostly stable, passing the price declines in Treasuries through to higher quality corporate bonds.

Commodity markets were mixed last week. Energy prices eased lower, while prices rose on many other commodities, including wheat, corn, copper, and gold.

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

Weekly-Market-Recap November 8th, 2021Download

Tapering is upon us at last. In a move that surprised no one, the US Federal Reserve announced on Wednesday that it would begin tapering its monthly purchases of Treasuries and MBS by approximately $15 billion per month, beginning immediately. Given the previous run rate of $120 billion per month, it would take 8 months for the tapering process to finish if done in linear fashion, meaning that the Fed’s asset purchase program would reach $0 in new purchases in June of 2022.

In other news, Friday’s payroll report exceeded expectations for job growth with 531k nonfarm payrolls added. The unemployment rate sank to 4.6% while underemployment dropped to 8.3%, both of which are new pandemic lows.

US stocks rallied in response to the news flow, with all three major US large cap indices finishing the week at all-time record highs. Small and midcap stocks were up even more sharply following the jobs report. International equities were mixed, with D/M higher while E/M in aggregate was flat.

Bond markets wobbled in the immediate aftermath of the tapering announcement but soon joined stocks in rally mode, with yields falling across the curve. Credit spreads remained stable as investment grade corporates clawed their way back very close to breakeven on the year.

Inflation-sensitive assets were mixed last week: oil prices fell, gold prices rose, and bitcoin finished lower.

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

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Weekly Market Recap

Weekly Market Recap – October 29, 2021Download

Large cap technology stocks led the market higher last week thanks in large part to stellar earnings results from tech bellwethers like Alphabet (Google) and Microsoft. The rally pushed the Dow, S&P 500, and Nasdaq Composite to fresh record highs on the final day of October, with the S&P and Nasdaq both delivering a return of over 7% for the month. Cyclicals lagged somewhat as inflation concerns eased and energy prices edged lower. Meanwhile, international stocks were mixed, with developed markets close to flat while emerging markets were once again pulled lower by a selloff in Chinese equities.

Growth stocks also got a boost from falling Treasury yields last week. The curve flattened considerably, with 2y yields hitting 50bp (+5bp on the week) while 10y yields fell 8bp and 30y yields were lower by 14bp. Fed funds futures markets are now pricing in a >75% chance of a rate hike occurring by June of 2022, much earlier than current consensus expectations from sell side economists.

Not all of the news was good last week, however. Q3 GDP came in lower than expected at +2.0% annualized, while Apple and Amazon both missed consensus earnings estimates, citing severe supply chain constraints that impacted revenues as well as input cost inflation that put pressure on operating margins. Starbucks also cited a 600bp impact to operating margins from rising wages and other inflationary pressures. As a result of these and other reports, sell side analysts have already begun lowering their earnings estimates for the balance of the year.

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

Weekly Market Recap – October 22, 2021Download

News regarding the pandemic was positive last week. Covid-19 case counts continued to fall in the US and globally, and on Thursday the FDA and CDC jointly announced new recommendations that made nearly 100 million Americans immediately eligible for a vaccine booster shot. All Americans aged 65 or older that originally received a 2-course regimen of either the Pfizer/BioNTech or Moderna vaccines are eligible, as are those aged 18-64 that either live in a long-term care facility, have underlying medical conditions that increase risk of severe disease, or live or work in settings that carry a high risk of virus transmission. In addition, all Americans aged 18 or older that received the single-shot Johnson & Johnson vaccine at least two months ago are eligible for a booster immediately.

Meanwhile, Q3 earnings season continued with a slew of strong results. With nearly a quarter of S&P 500 companies now having reported Q3 numbers, 84% of the results so far have beaten consensus earnings estimates, while 75% have beaten on top line revenues.

Against this positive backdrop for the economy, stocks rose for the 3rd week in a row, with the S&P 500 and the Dow closing at new all-time highs on Thursday and Friday, respectively. Rates moved higher, particularly on the front end of the curve as markets priced in a higher probability of a rate hike by the end of next year. Lastly, energy and other commodity prices rose, sending the Bloomberg Commodity Index to its highest level in more than six years. See the Chart of the Week for a time series.

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

Weekly Market Recap – October 15, 2021Download

Equities rallied around the world last week as Q3 earnings season got underway, with several of the large US banks reporting strong trading results and record M&A deal flow. Gains in large cap stocks pushed the S&P and Dow back to within 1.5% of their all-time highs from early September, while the Nasdaq remains roughly 3% off of its highs. International markets also finished higher, but remain well behind the US on a YTD basis.

Bond prices rose last week thanks to a flattening of the US Treasury yield curve. 2y yields rose to 39 basis points as investors priced in a higher probability of multiple rate hikes occurring at some point in 2022/23, while 10y and 30y yields fell as longer-term inflation fears eased slightly. Investment grade credit spreads were stable.

Oil prices rose again last week, with US crude benchmark West Texas Intermediate closing at a fresh 7-year high of $82.28/barrel. Natural gas prices eased back slightly but remain very high relative to recent years.

Inflation data was mixed last week, with CPI slightly exceeding consensus expectations while PPI was lower than feared. Meanwhile, jobless claims fell for the second straight week after rising throughout September. Finally, the University of Michigan’s Consumer Sentiment Index softened slightly in the preliminary October reading, with weakness in both current conditions and future expectations. On the positive side, however, 5-10 year inflation expectations eased lower and appear to be well anchored around price stability.

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

Weekly Market Recap – October 1, 2021Download

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.


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

Weekly Market Recap – September 24, 2021Download

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.

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

Weekly Market Recap – September 17, 2021Download

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

Weekly Market Recap – September 10, 2021Download

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.

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

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Weekly Market Recap

Weekly Market Recap – July 16, 2021Download

Last week was a challenging one for most risk assets, as investors recalibrated their global growth expectations in the face of the rapidly spreading delta variant of SARS-CoV-2. In the US, large cap stocks were mostly lower, with only traditional defensives like utilities (+2.6%) , staples (+1.3%), and real estate (+0.7%) registering small gains. Cyclicals (particularly energy) came under selling pressure, as did small and midcap companies. International stocks were mixed, with developed markets lower on the week while E/M finished higher.

US Treasuries were treated as a safe haven, sending yields lower and bond prices higher. 10y and 30y Treasury yields both fell 7 basis points on the week, pushing the 2s10s curve to 107 basis points, the lowest since mid-February.

After touching a new pandemic-era high on Tuesday, oil prices fell on Wednesday and Thursday, finishing the week at 1-month lows.

Economic data was mixed. In encouraging news, Empire Manufacturing was very strong, retail sales were up sequentially, and weekly jobless claims continue to trend lower. Conversely, the Philly Fed’s monthly business outlook declined, the University of Michigan’s Consumer Comfort gauge was down, and inflation data (CPI and PPI) for June came in higher than expected, with headline CPI reaching +5.4% y/y while core CPI was +4.5%. As was the case in the previous two months, most of the drivers of above-trend inflation appear to be transitory factors related to the reopening of the economy.

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