U.S. and International Equities
Major U.S. and International Markets Finished Higher
The major equity markets finished solidly in the green this week as we head into the genesis of Q3 earnings season. The international markets, as represented by the developed markets (MSCI EAFE Index) along with the emerging markets (MSCI EM Index) finished the week higher and outperformed their large cap counterparts in the United States. Every sector with the exception of communication services finished the week higher as investors took advantage of oversold conditions from last month’s market pullback.
October’s Reputation for Spooky Markets
October gets a bad rap as a difficult month for stocks because of crashes during 1929, 1987, and 2008 to be specific, but it has historically been about an average performing month. A positive aspect of the month of October is that it begins the fourth quarter which has historically been one of the best performing quarters for equities.
Fixed Income and Commodities Recap
Bonds Lower While Commodities Ended Mostly Higher
The Bloomberg Barclays Aggregate Bond Index finished higher, reversing three straight weeks of lower prices and thus higher interest rates for the index on the back of inflation concerns. Investment-grade corporate bonds, as tracked by the Bloomberg Barclays Credit index, rebounded this week almost 1% after last week’s selloff.
Oil finished higher for the fourth straight week amid worldwide supply concerns. Moreover copper and silver finished higher this week as investors anticipate higher demand as signs of economic improvement continue to emerge.
“The favorable earnings reports for banks allowed investors to forget a relatively weak September and thus push markets higher,” explained LPL Research Senior Vice President and Director of Research Marc Zabicki. “The market gains extended into credit markets while oil continues to rise as well.”
Economic Weekly Roundup
Fed Taper Talk
The September Federal Open Market Committee (FOMC) meeting minutes were released this week and showed that a formal announcement on tapering is likely coming in November. The minutes reported that FOMC members viewed that possibly tapering could start in either mid-November or mid-December. Moreover, the Committee remains divided on when interest rate hikes could begin. Some participants believe that it would likely be appropriate to keep the Federal Funds rate at or near its zero lower bound for the next couple years.
Headline CPI Topped Estimates While Core PPI Simmered
The Bureau of Labor Statistics released September Consumer Price Index (CPI) this week. The report showed that headline CPI climbed 0.4% month over month vs. the Bloomberg estimates of 0.3%, while core CPI, which excludes food and energy prices, matched expectations. The Producer Price Index (PPI) for September slowed to a 0.5% increase month over month, in line with consensus. Core PPI (excluding food and energy) came in well below consensus estimates and grew at its slowest pace since May.
Retail Sales Shine
The U.S. Census Bureau released September retail sales data on Friday showing overall sales outperforming the Bloomberg consensus. Factoring out automobile and gasoline sales, last month’s sales handily surpassed expectations. In addition, August sales were revised higher, providing solid evidence of consumers’ resilience amid elevated Delta variant numbers.
The following economic data is slated to be released during the week ahead:
- Monday: September capacity utilization, industrial and manufacturing production, October National Association of Home Builders Housing Market Index
- Tuesday: September building permits and housing starts
- Wednesday: Federal Reserve Beige Book
- Thursday: Weekly initial and continuing unemployment claims, September leading indicators and existing home sales
- Friday: Purchasing Managers Index (PMI) composite and Markit PMI
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