Market Update November 22, 2021
Photo by Aaron Burden on Unsplash
Economic data for the week included strong reports for retail sales and industrial production, as well as a re-acceleration in manufacturing indexes. Housing data was mixed, while jobless claim improvement has flattened a bit as of late.
Equity markets were mixed in the U.S., but declined throughout the rest of the world. Bonds were flattish in the U.S., but lagged globally with a stronger dollar. Commodity prices fell back as oil inventories rose.
U.S. stocks ended mixed, with the mega-cap Dow and small-cap Russell 2000 negative on the week, while the S&P 500 inched slightly positive. By sector, consumer discretionary and technology both gained a few percent on the week as essentially the only gaining sectors, due to strength in Amazon, Home Depot, and Tesla. On the downside, energy, materials, and financials fell back by several percent. Real estate was little changed on the week, in keeping with minimal changes in interest rates.
The news environment has been mixed, with decent economic data coupled with continued inflation fears and recent rise in Covid cases globally. The initial $1 tril. infrastructure bill was signed into law by the President early in the week. What’s left is the secondary social spending-focused bill now being moved from the House to the Senate. The debt ceiling is top of mind again, with a large chunk of money leaving the treasury to fund highway projects in keeping with the just-passed infrastructure bill. This leaves less in the coffers for everything else, with a projected deadline of early- to mid-December for another agreement being needed (after it was punted forward several weeks ago). While hopes are high that a showdown can be avoided, 11th hour negotiations could add volatility to markets.
Foreign stocks ended weaker across the board last week, not helped by a stronger U.S. dollar. Japan fared best, with the smallest losses, while Europe, the U.K. and emerging markets ended further into the negative. Japan announced a half-trillion dollar spending package to help with economic damage caused by Covid. Interestingly, this runs counter to the trend in other developed nations, which had been starting to pull back on fiscal crisis measures. Rising Covid cases across Europe have resulted in more lockdowns. In fact, daily infections in some countries, such as Germany (described as under a new ‘state of emergency’), Norway, Netherlands, and Austria (under a more severe lockdown) are again at 100% of their prior all-time high (from late 2020). However, overall death rates are lower. Questions are now focused on the growing case rate among the vaccinated, which points to waning vaccine efficacy, and the need for boosters—currently under government review. Long-story-short, these new Covid waves tend to dampen market sentiment and delay the potential ‘final’ recovery. Emerging markets were negative across the board, with Brazil and Turkey faring worst.
U.S. bonds were flat to slightly higher on the week, with interest rates ticking down slightly along the treasury curve. Corporates underperformed treasuries, especially high yield and floating rate bank loans, with were slightly negative. Foreign bonds were held down by a stronger dollar, especially in the emerging market local segment, which lost well over a percent.
Commodities fell back on the week generally as the U.S. dollar strengthened. While metals were down to a lesser degree, the energy sector fell by nearly -4%. While natural gas gained several percent, the price of crude oil declined by -6% to just under $76/barrel. OPEC+ continues to refuse requests from a variety of nations (U.S. and Asia mainly) to increase oil production, in an attempt to lower currently-high prices. Instead, releases from national stockpiles, normally done in emergency conditions or under times of extreme market stress, look to be the next course of action. High gasoline prices are a key hot button in consumer sentiment surveys, with over $5/gallon readings in some urban locations straining budgets—of the lower-income particularly.
Sources: LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.