Week in Review: November 5, 2021
Recap & Commentary
Markets enjoyed a strong week, with the S&P 500 ending at a new record high, propelled by strong earnings reports, upbeat economic data, positive COVID news, and no surprises from the U. S. Federal Reserve following their November meeting.
As expected the Fed officially announced their tapering plans, indicating that they will begin reducing their bond purchases by $15B/month; $10B of Treasuries, and $5B of Mortgage-Backed Securities (MBS). At that pace, tapering would conclude by June 2022. On the topic of inflation, the Fed stated that the forces behind inflation, “are expected to be transitory.” That marked a subtle change from the prior meeting’s statement that characterized the forces simply as “transitory.” Across the pond, the Bank of England held off on raising interest rates, helping drive global rates lower for the week.
The CDC officially approved Pfizer’s COVID-19 vaccine for children ages five to 11. In addition, the company announced that its experimental pill cut hospitalizations and death rates in high-risk adults by 90%.
On Friday, the House of Representatives passed the $1T infrastructure bill that had previously been passed by the Senate. The bill will provide funding for bridges, roads, transit systems, broadband internet, and other initiatives.
Through Friday, 89% of S&P 500 companies had reported 3Q21 earnings. Thus far, 81% of reporting companies have exceeded their consensus estimates. According to industry group Factset, aggregate earnings growth for the quarter is expected to be 39%, up from the initial estimate of 28%.
Economic Bullet Points
Weekly economic data was headlined by the September employment report which saw nonfarm payrolls add 531k new jobs in the month, well above the expected 450k. In addition, the prior two months were revised upward by a total of 235k. Unemployment edged down 0.2% to 4.6%. The labor force participation rate, however, was unchanged at 61.6%, pointing to ongoing challenges to attract additional entrants into the labor force. Since June 2020, the participation rate has been range bound between 61.4% and 61.7%, well below the pre-pandemic level of 63.4% in January 2020.
According to the Institute for Supply Management, manufacturing and services sector activity remained strong in September, with both readings exceeding expectations. Within the manufacturing sector, new orders continued to expand, albeit at their slowest pace in 16 months, hiring improved, and prices increased keeping upwards pressure on inflation.
Services sector data soared to a new record high, suggesting that consumers are once again embracing such activities as travel and leisure as new COVID cases continue to fall.
The U.S. trade deficit reached $80.9B in September, a new record high, driven by a 3% decline in exports coupled with a 0.6% increase in imports. Through September, the overall trade deficit stands at $638.6B, up 33% year over year.
The G20 agreed to a global minimum tax rate of 15% that is intended to prevent companies from taking advantage of so-called “tax haven” countries. According to the Organisation for Economic Co-operation and Development, the tax is estimated to generate $150B/year on a global basis.
|U.S. Bond Market||0.6%|
|10-Year Treas. Yield||1.45%|
|WTI Oil ($/bl)||$81|
The Week Ahead
- Producer Inflation (PPI)
- Consumer Inflation (CPI)
- Consumer Sentiment
- Weekly Jobless Claims