11|02|2021

Strong Push for the Future | October 29, 2021

There was an onslaught of data last week, which led to gains. Should more be expected with the coming earnings season?

Monday                       S&P 500 0.27%| NASDAQ 1.09%

ISM Manufacturing unexpectedly slipped and remains in contractionary territory. The weaker economic data would typically signal lower rates as rate cut expectations would increase. To the contrary, 10-year treasuries rose on the day. In the face of weak economic data, the start of the quarter brought optimism towards the next three months.

Tuesday                       S&P 500 0.62% | NASDAQ .84%

JOLTs job openings rose more than expected to 8.14M openings. For perspective, there were 6.6M unemployed as of the May report. The strong jobs data did not deter markets, though; this may be because the Federal Reserve Board (FRB) Chair, J. Powell, spoke on the day. He indicated that progress is being made towards their inflation target. This is the ‘secret sauce’ needed to justify future rate cuts.

Wednesday                 S&P 500 0.51% | NASDAQ 0.88%

Initial jobless claims rose for the week to 238K from 234K; the level remains elevated, albeit from all-time lows. Factory orders unexpectedly slipped into the negative on the month. Additionally, ISM Services unexpectedly slipped into contractionary territory. This is all bad news for economic production, so why did the markets rise? Interest rates fell as this data increases the likelihood that the FRB will lower rates sooner than expected. The heightened odds are now calling for a .25% cut in September and December, according to CME FedWatch.

Thursday                               S&P 500        -% | NASDAQ      -%

Happy Independence Day!

Friday                                    S&P 500 0.54% | NASDAQ 0.90%

Happy Jobs Friday! The unemployment rate rose to 4.1%, Nonfarm payrolls beat expectations, and participation rose to 62.6% from 62.5%, all for June. The unemployment rate went up even though we added 206K jobs??? Participation went up so, with more people in the market, the rate can go up even as jobs are added. This is a positive signal that workers are returning to the work force. The rise on equity markets, however, was on hopes that economic weakness would be enough for an FRB rate cut.

Conclusion                            S&P 500 1.95% | NASDAQ 3.55%

This was a busy week for economic data, especially for a holiday shortened week. We got weaker Jobs, manufacturing, Services, and Factory orders. The weakness led to stronger markets on hopes the FRB will cut rates BEFORE a recession can materialize. The coming week starts second quarter earnings. Valuations are stretched (S&P 500 P/E: 28.94) and economic production is weak, very little should be expected from this season. This could be the start of volatility that would lead into the Autumn.

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Earnings were strong across the week, which pushed markets higher. Will it hold up for future quarters?

Monday

The S&P 500 rose .50% to open the week. This was a great opening figure. As of late, markets have opened the week with a blah performance. It has either been down or only up slightly. VIX is currently 16 and this would represent the upper ended of the daily range for the S&P 500.

Tuesday

The S&P 500 rose 0.20% on Tuesday. The housing market provided some explosive data as new home sales surged by 14%. Additionally, the Home Price Index, which measures change in average home prices rose 18.5% YoY (Oct). Believe it or not, this measure is a slow down from last month’s 19.2%.

Wednesday

Markets shifted lower for the first time in a while on Wednesday. The S&P 500 lost 0.50%. Corporate earnings contributed to the move lower for the first time. Earnings from large cap Tech stocks, out Tuesday evening, pushed market sentiment lower at the open. Compounding the sentiment was a larger than expected draw down of oil supplies. This lends to concerns around continued price pressures, AKA inflation concerns.

Thursday

The markets rebounded nicely on Thursday, as the S&P 500 rose 0.98%. Initial jobless claims fell to the lowest level since the start of the pandemic (281K). A trend that is happening more and more as of late. For perspective, average initial job losses at the end of the last expansion were around 200K to 220K per week.

Friday

Markets closed the day and the week on an up tone. The S&P 500 rose 0.20% to end the day and a weekly gain of 1.14%. This happened even as consumer sentiment came in at 71.7. The brighter news of the day was higher than expected consumer spending. Additionally, Personal Consumption Expenditures (PCE) came in at 4.4% YoY in September. While the highest level to date, it is still substantially lower than its CPI counterpart at 5.4%. The Federal Reserve Board (FRB) regards the PCE measure as a more accurate indication of inflation.

Conclusion

Markets celebrated another strong week for corporate earnings, even as GDP slides to 2.0% in Q3 from 6.7% in Q2. 55% of S&P 500 companies have now reported and 82% are beating on earnings and 66% have beat on revenue. Cost cutting initiatives should be expected over the next year as companies attempt to absorb higher input costs. Unfortunately, expect coming quarters earnings beats to fall as interest rates creep higher and inflation deteriorates bottom line performance.

~ Your Future… Our Services… Together! ~

FOR MORE INFORMATION:

If you would like to receive this weekly article and other timely information follow us, here.

Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long-term holding strategy is the best strategy in any market environment.
Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.