Market Commentary – September 2021
Overall, the third quarter was a roller-coaster ride for the market. The Dow, the Russell 2000, the Nasdaq, and the Global Dow lost value, while the S&P 500 was able to eke out a quarterly gain. Treasury yields, the dollar, and crude oil prices ended the third quarter higher, while gold prices dipped lower. Financials, information technology, communication services, and health care ended the quarter in the black. Energy, industrials, and materials fell by at least 4.5%. Despite the downturns, the benchmark indexes remain well ahead of their 2020 closing values, led by the S&P 500, which ended the quarter nearly 15.0% over last year's pace.
The yield on 10-year Treasuries fell 30 basis points. Crude oil prices increased $14.17 per barrel, or 24.0%, in the third quarter. The dollar lost nearly 1.0%, while gold prices advanced 3.6%. The national average retail price for regular gasoline was $3.18 per gallon on September 27 th, up from the August 30 price of $3.14 and higher than the June 28 price of $3.09.
July kicked off the third quarter with large caps outperforming small caps. The S&P 500, the Dow, and the Nasdaq advanced, reaching record highs along the way, while the small caps of the Russell 2000 fell over 3.5%. Treasury yields, the dollar, and crude oil prices also declined. Gold prices advanced. By the end of the month, over 80% of the S&P 500 companies that reported earnings exceeded expectations. COVID cases surged as the Delta variant spread across the country. Inflation figures continued to rise. The Consumer Price Index rose 0.9%, the Producer Price Index climbed 1.0%, both import and export prices advanced 1.0%, and retail sales increased 0.6%. The Federal Reserve noted that the economic recovery remained on track. Second-quarter gross domestic product advanced at an annualized rate of 6.5%, according to the initial estimate from the Bureau of Economic Analysis. Health care led the market sectors, followed by real estate, utilities, information technology, and communication services. Financials and energy lagged.
Equities continued their strong showing in August, recording several record highs during the month. Strong corporate earnings reports and improving economic conditions helped bolster investor confidence, despite the increasing prevalence of the Delta variant. Growth stocks outpaced value shares. Financials and communication services led the market sectors, while energy lagged. The Nasdaq paced the indexes, climbing 4.0%, followed by the S&P 500 (2.9%), the Russell 2000 (2.1%), the Global Dow (2.1%), and the Dow (1.2%). Ten-year Treasury yields jumped 7 basis points to close the month at 1.30%. The dollar rose by 0.6%, while crude oil prices fell 7.2% to $68.51 per barrel on the last business day of the month. Gold prices changed little, trading at $1,817.50 per ounce. The jobs sector improved, adding 943,000 new jobs. Wage gains were strong, while unemployment claims dipped.
Following a strong July and August, September saw the market struggle with volatility. Traders had other concerns to deal with, including slowing economic growth, elevated inflation, supply-chain disruptions, a global energy crunch, and China's regulatory restrictions. In addition, investors are facing the prospects of the Federal Reserve beginning to wind down its stimulus measures. Each of the benchmark indexes lost value, with the Nasdaq falling more than 5.0% and the S&P 500 dipping 4.8%. Among the market sectors, energy climbed 8.5%, while the remaining sectors ended well in the red. Crude oil prices rose more than 9.0% to close the month over $75.00 per barrel. The dollar and 10-year Treasury yields advanced, while gold prices declined.
As of September 30th
|Quarterly Change||YTD Change|
|S & P 500||3,756.07||4,307.54||-4.76%||0.23%||14.68%|
|Federal Funds||0.00% – 0.25%||0.00% – 0.25%||0 bps||0 bps||0 bps|
|10-yr Treasury||0.91%||1.52%||22 bps||8 bps||61 bps|
*Chart reflects price changes, not total return
Last Month's Economic News
- Employment: The pace of job gains slowed in August, as 235,000 new jobs were added, well off the pace set in July (943,000) and June (938,000). Through the first eight months of the year, monthly job growth has averaged 586,000. The unemployment rate declined by 0.2 percentage point to 5.2% in August. The number of unemployed persons edged down to 8.4 million, following a large (782,000) decrease in July. Both measures are down considerably from their highs at the end of the February-April 2020 period. However, they remain above their levels prior to the COVID-19 pandemic (3.5% and 5.7 million, respectively, in February 2020). In August, notable job gains occurred in professional and business services (74,000), transportation and warehousing (53,000), private education (40,000), and manufacturing (37,000). Employment in retail trade declined 29,000. The labor force participation rate in August, at 61.7%, was unchanged over the month and has remained within a narrow range of 61.4% to 61.7% since June 2020. In August, 13.4% of employed persons teleworked because of the pandemic, little changed from the prior month. In August, 5.6 million persons reported that they had been unable to work because their employer closed or lost business due to the pandemic, which is up from 5.2 million in July. Average hourly earnings rose $0.17 to $30.73 ($0.11/$30.54 in July). Earnings have increased 4.3% since August 2020. The average work week in August was 34.7 hours, unchanged since June 2021.
- FOMC/interest rates: The Federal Open Market Committee met in September. While noting that the economy has continued to recover, the ongoing spread of the coronavirus, particularly the Delta variant, may be slowing the pace of recovery. With the goals of maximum employment and inflation running at 2.0%, the Committee decided to maintain the current target range for the federal funds rate at 0.00%-0.25%. However, the FOMC indicated that it may begin scaling back its purchases of securities as early as this November.
- GDP/budget: According to the third and final estimate from the Bureau of Economic Analysis, the economy accelerated at an annual rate of 6.7% in the second quarter of 2021 after advancing 6.3% in the first quarter. Consumer spending, as measured by personal consumption expenditures, increased 12.0% in the second quarter after rising 11.4% in the prior quarter. The personal consumption price index (prices for consumer goods and services) rose 6.5% in the second quarter after climbing 3.8% in the first quarter. Excluding food and energy, the price index increased 6.1%. In the second quarter, fixed investment climbed 3.3% following a 13.0% increase in the first quarter, and residential fixed investment fell 11.7% after increasing 13.3% in the first quarter. Exports rose 7.6% in the second quarter after decreasing 2.9% in the first quarter. Imports (which are a negative in the calculation of GDP) increased 7.1% in the second quarter (9.3% in the first quarter).
- Inflation/consumer spending: Prices at the consumer level continued to advance in August. According to the latest Personal Income and Outlays report, consumer prices rose 0.4% in August after edging up 0.4% in July. Prices have increased 4.3% since August 2020. Excluding food and energy, consumer prices rose 0.3% in August (0.3% in July) and 3.6% since August 2020. Personal income increased 0.2% in August, while disposable (after-tax) personal income increased 0.1%. Consumer spending rose 0.8% in August following a -0.1% dip in July.
- The Consumer Price Index climbed 0.3% in August following a 0.5% jump in July. Over the 12 months ended in August, the CPI rose 5.3%. Prices less food and energy rose 0.1% in August, the smallest increase since February 2021. Energy prices increased 2.0%, mainly due to a 2.8% rise in gasoline prices. Food prices increased 0.4% (0.7% in July), and new vehicle prices rose 1.2% (1.7% in July). Over the 12 months ended in August, energy prices have risen 25.0%, food prices have increased 3.7%, and prices for used cars and trucks have climbed 31.9%.
- Prices that producers receive for goods and services continued to climb in August, increasing 0.7% after rising 1.0% in both June and July. Producer prices increased 8.3% for the 12 months ended in August, the largest yearly gain since November 2010 when 12-month data was first calculated. In August, prices for services rose 0.7% (1.1% in July), and prices for goods moved up 1.0% (0.6% in July). Producer prices less foods, energy, and trade services advanced 0.3% in August (0.9% in July) and have risen 6.3% since August 2020, the largest 12-month increase since August 2014.
- Manufacturing: Industrial production increased 0.4% in August after advancing 0.8% (revised) the previous month. Late-month shutdowns related to Hurricane Ida held down the gain in industrial production by an estimated 0.3 percentage point. Manufacturing output rose 0.2% in August after rising 1.6% in July. In August, mining fell 0.6%, reflecting hurricane-induced disruptions to oil and gas extraction in the Gulf of Mexico.
- New orders for durable goods increased 1.8% in August after advancing 0.5% in July (revised). Transportation drove the August increase, with new orders climbing 5.5% after decreasing 0.4% in July. Excluding transportation, new orders edged up 0.2%. Excluding defense, new orders advanced 2.4% after dipping 0.5% in July. New orders for nondefense aircraft and parts jumped 77.9% in August after falling 36.3% the previous month. Goods declined 8.0% following a 1.6% increase in July. New orders for capital goods reversed a 3.1% drop in July, increasing 6.7% in August. The advance was driven by a 9.0% rise in orders for nondefense capital goods. New orders for defense capital goods fell 8.3%.
- Housing: Existing home sales fell 2.0% in August following two consecutive monthly gains. Over the past 12 months, existing home sales dropped 1.5%. The median existing-home price was $356,700 in August ($359,900 in July), up 14.9% from August 2020. Total housing inventory at the end of August dropped 1.5% from July's supply and is down 13.4% from one year ago. In August, unsold inventory sat at a 2.6-month supply at the present sales pace, the same figure recorded in July but down from 3.0 months in August 2020. Sales of existing single-family homes also decreased in August, falling 1.9% after increasing 2.7% in July. Year over year, sales of existing single-family homes fell 2.8%. The median existing single-family home price was $363,800 in August, down from $367,000 in July.
- New single-family home sales increased for the second consecutive month in August, advancing 1.5% after climbing 1.0% in July. Despite the recent monthly increases, sales of new single-family homes have decreased 24.3% from August 2020. The median sales price of new single-family houses sold in August was $390,900 ($390,500 in July). The August average sales price was $443,200 ($446,000 in July). The inventory of new single-family homes for sale in August represents a supply of 6.2 months at the current sales pace, up slightly from the July revised estimate of 5.7 months.
- Imports and exports: August import prices decreased for the first time since October 2020. The import price index declined 0.3% in August following increases of 0.4% in July and 1.1% in June. Import prices rose 9.0% over the 12 months ended in August (10.1% for the 12 months ended in July). This is the smallest 12-month increase since March 2021. Import fuel prices fell 2.3% in August — the first monthly decrease since October 2020. The August downturn in fuel prices was mostly driven by a 2.4% decline in petroleum prices. Despite the decline in August, import fuel prices advanced 56.5% for the year ended in August. Nonfuel import prices dipped 0.1% in August after ticking up 0.1% in July. Export prices increased 0.4% in August after increases of 1.1% in July and 1.2% in June. For the year ended in August, the price index for exports rose 16.8%. Agricultural export prices rose 1.1% in August following a 1.7% decline in July. Nonagricultural exports rose 0.2% in August after increasing 1.4% in July.
- International Markets: Whether it's transitory or not remains to be seen, but several countries are experiencing accelerated inflation. Germany, Europe's largest economy, saw inflation grow at a record pace in September, climbing 4.1% following a 3.4% jump in August. French inflation hit a near 10-year high of 2.7% in September. Like the case in many countries, surging energy prices are driving the inflation spike in France. Nevertheless, if inflation continues to climb, pressure will be on the European Central Bank to determine how to proceed with its asset purchases going forward. China, the world's second largest economy, is attempting to contain the financial fallout from the default or bankruptcy of mega-developer Evergrande. Also last month, the People's Bank of China, which has targeted bitcoin since 2013, declared that all crypto-related activities are illegal in China. For September, the STOXX Europe 600 Index fell about 3.8%; the United Kingdom's FTSE declined 0.8%; Japan's Nikkei 225 Index rose 3.5%; and China's Shanghai Composite Index was essentially unchanged from August.
- Consumer Confidence: According to the latest report from The Conference Board, consumer confidence declined in September for the third consecutive month. The Consumer Confidence Index® stands at 109.3, down from 115.2 in August. The Present Situation Index, based on consumers' assessment of current business and labor market conditions, fell to 143.4 in September from 148.9 the previous month. The Expectations Index, based on consumers' short-term outlook for income, business, and labor market conditions, registered 86.6 in September, down from 92.8 in August. According to the report, consumer confidence waned, as the spread of the Delta variant deepened concerns over the state of the economy and short-term growth prospects. Nevertheless, consumer confidence is still high by historical levels, while these declines in confidence suggest consumers have grown more cautious and are likely to curtail spending going forward.
Eye on the Year Ahead
Heading into the fourth quarter of 2021, several economic indicators have improved, while a few have waned. Real estate and manufacturing slowed from the pace set earlier in the year. GDP posted strong data for the second quarter, although some estimates suggest that the third quarter will not be quite as strong. On the jobs front, there were nearly 11 million jobs available but nearly 8.7 million unemployed actively looking for work, further widening the gap between job openings and hires.
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