US Financial Markets Rally with a Solid Start for Q3 Earnings
Market Recap Week ending 10.15.21
US Financial markets rallied across the board on a solid start to the 3rd quarter corporate earnings season. The Consumer Discretionary sector led gains with a 3.6% advance off of much better than expected Retail Sales data. The Materials sector also had an excellent showing as supply chain logistic concerns remained and helped push commodity prices higher. Technically, the S&P 500 regained its 50-day moving average on Thursday and built upon that threshold on Friday. Over the next few days, investors will continue to look at this level to see if it can be reestablished as an area of support. Economic data for the week was, for the most part, better than expected, showing continued progress on the labor front.
For the week, the S&P 500 gained 1.8%, the Dow increased by 1.6%, the NASDAQ led gainers with an advance of 2.2%, and the Russell 2000 added 1.5%. It was an interesting week in the US Treasury market that saw the yield curve flatten a bit. The release of the most recent FOMC meeting notes suggested that the Federal Reserve will curtail their asset purchase program by 15 billion in the next couple of months with plans to eliminate the program by the middle of 2022. The news hit the front end of the curve, where the 2-year note yield increased by nine basis points to close at 0.4%. Interestingly, the back end of the curve was bid up. The 10-year bond yield decreased by three basis points to 1.58%, and the 30-year bond yield fell eleven basis points to close at 2.05%. Oil prices continued to rally, with WTI gaining $2.86 or 3.67% to close at $82.26 a barrel. Gold prices increased by $10.7 to $1768.10 an Oz. Notably, Copper prices increased by 10% or $0.455 to $4.731 a Lb.
Financials kicked off 3rd quarter earnings this week with impressive reports. Most banks beat on the top and bottom lines and found investment banking and Sales and Trading sources of strength in the quarter. Commentary out of the executive suite seemed to be cautiously optimistic. On the one hand, a rich pipeline in IPO’s coupled with more M&A should continue to be a tailwind for investment banking. On the other hand, CEOs acknowledged that we could be in for a more persistent inflationary environment. Investors also saw solid results out of United Healthcare, Walgreens, and Taiwan Semiconductor. Delta Airlines announced a nice quarter but warned of the impact of higher fuel prices on their coming quarters. Apple also made headlines when it announced it would reduce the production of the iPhone 13 because of supply chain constraints.
Economic news for the week was generally positive. Retail Sales blew away estimates on both the headline and core numbers. The headline number came in at 0.7 versus expectations of -0.3, while the core number that excludes autos and energy came in at 0.8 versus the estimate of 0.4. On the labor front, Initial claims came in at 293k, the lowest level since the pandemic started, and Continuing Claims also trended lower to 2.593M. Inflation data was better than expected at both the consumer and producer levels, but year-over-year increases still cause concern. CPI came in at 0.4 versus expectations of 0.3 whole the core number came in at 0.2 versus 0.3. A year-over-year increase of 5.4% and 4%, respectively. PPI came in at 0.5 versus expectations of 0.6, while the core number came in at 0.2 versus 0.5. Finally, The University of Michigan’s preliminary reading of Consumer Sentiment for October came in at 71.4, down from the final September reading of 72.8.
