U.S. and International Equities
Major Markets Mostly Higher
The major equity markets finished the week on a positive note. The emerging markets (MSCI EM) was the major outlier, finishing just fractionally higher. China’s challenges remain in the minds of investors as the country is dealing with the after-effects of a regulatory crackdown, energy shortages, and a commercial real estate crisis.
Small Caps Solid
The Russell 2000 ended the week with the best performance. Given the early stage economic expansion along with attractive valuations, LPL Research believes these equities should continue to show leadership. Consumer discretionary stocks led all S&P 500 sectors for the week on the backs of shares of Tesla and Amazon. Both positions combined comprise over 45% of the index.
Earnings, Earnings, Earnings,
As we get through the thick of Q3 earnings season with over 90% of the S&P 500 having reported, third quarter earnings are tracking to a 39% year-over-year increase, more than 11 percentage points above the October 1 consensus estimate. The biggest upside surprises, on average, have come from three value-oriented sectors: financials, energy, and healthcare.
Fixed Income and Commodities Recap
Bonds Reverse Course
The Bloomberg Barclays Aggregate Bond Index finished modestly higher as yields declined for the second straight week. High-yield corporate bonds, as tracked by the Bloomberg Barclays High Yield index, continued their trek higher for a third straight week as their yields declined.
Commodities Finish Mixed
Natural gas prices increased for two consecutive weeks as market participants took advantage of positive supply-demand fundamentals. Oil declined for the second straight week as weekly inventory data showed more builds than anticipated, breaking five straight weeks of gains, while most key metals were higher for the week, with the exception of copper.
Economic Weekly Roundup
The Federal Reserve (Fed) concluded its two-day Federal Open Market Committee (FOMC) meeting on Wednesday and, as expected, it announced plans to reduce (taper) its $120 billion per month bond purchase program beginning this month. The Fed plans to reduce its Treasury purchases by $10 billion each month and its mortgage securities purchases by $5 billion a month, ending purchases completely by June 2022. This was in line with LPL Research expectations.
Manufacturing Solid as Supply Chain Challenges Linger
The Institute for Supply Management (ISM) October Manufacturing Purchasing Managers’ Index (PMI) declined vs. September; however the reading came in slightly ahead of economists’ expectations. The reading indicates solid expansion, but the underlying data highlighted ongoing concerns. Lead times for delivery of materials used in production climbed to their highest level since the 1980s. New orders, an important leading indicator, signaled continued expansion but at a declining rate.
Job Landscape Continues to Improve
Initial claims for unemployment insurance were reported at 269,000 for the week ending October 28, which was the lowest reading in 20 months. Moreover, continuing claims also reached a post-pandemic low coming in at slightly over 2 million.
The economy added over 500,000 jobs during October which beat economists’ expectations. The conclusion of enhanced unemployment benefits, declining COVID-19 cases, along with an increase in employment incentives contributed to October’s results.
The following economic data is slated to be released during the week ahead:
- Tuesday: National Federation of Independent Business (NFIB) October Small Business Index, October Producer Price Index (PPI)
- Wednesday: October Consumer Price Index, October hourly earnings, October average workweek, October wholesale inventories, September wholesale inventories, October Treasury Budget, weekly initial and continuing unemployment claims
- Friday: September Job Openings and Labor Turnover Survey (JOLTS), November University of Michigan sentiment
Also next week, we head toward the home stretch of earnings season with only 13 S&P 500 companies slated to report third quarter results.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results. All market and index data comes from FactSet and MarketWatch.
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U.S. Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
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