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Week in Review: October 15, 2021

Recap & Commentary

Markets posted their best week since late July, boosted by surprisingly robust economic data and a strong start to earnings season. For the week, the S&P 500 rose 1.8%, leaving it just 1.5% from its all-time record high set in early September. US oil prices closed at $82, their highest level in three years on continued strengthening demand and limited supply increases.

The Federal Reserve released the minutes from its September Federal Open Market Committee meeting which reinforced the notion that the central bank will officially announce its tapering plans in November. While the minutes did not contain any real surprises, they did reveal a growing uncertainty as to exactly how long the current bout of inflation will last. “Most participants saw inflation risks as weighted to the upside because of concerns that supply disruptions and labor shortages might last longer and might have larger or more persistent effects on prices and wages than they currently assumed.”

Earnings season got off to a strong start with the majority of the big banks reporting better than expected earnings, aided by a reduction in loan loss reserves. That was welcomed by investors as a sign that banks believe the worst of the economic impact from the pandemic is over.

In an effort to reduce the backlog of container ships waiting offshore, the port of Los Angeles announced that it will increase its operations to 24/7. In addition, Walmart, UPS, and FedEx also announced a move towards 24/7 operations.

Economic Bullet Points

Inflation was front and center with readings on both consumer and producer prices. On a headline basis, consumer prices rose 0.4% in September, 0.1% faster than both the expected and previous month’s pace. Compared to a year ago, prices rose 5.4%, up 0.1% from the August reading. Though the increase was small, it ran counter to the recent narrative that prices might be moderating. Excluding more volatile food and energy prices, core readings of inflation rose 0.2% and 4.0% on a monthly and annual basis, respectively.

Providing a counter balance to the CPI narrative, PPI prices rose less than expected, up 0.5% in September versus the expected 0.6% increase. Core PPI rose just 0.2%, well below the expected 0.5% increase. For the moment at least, that helped alleviate some of the growing concerns about inflation.

Retail sales defied expectations for a 0.2% decrease by jumping 0.7%. The stronger than expected sales reflected ongoing robust demand, but also rising prices. According to industry group Kelley Blue Book, the average price of a new automobile rose 12% from a year ago to exceed $45K for the first time ever.

Consumer sentiment declined slightly on weaker current and future expectations as concerns about the Delta variant and inflation remained prevalent. One-year inflation expectations rose 0.2% to 4.8%, while five-year expectations dropped 0.2% to 2.8%.

Weekly jobless claims dropped 36K to 293K, a new pandemic low.

Of Note

Reflecting the current rise in inflation, the Social Security Administration announced that the 2022 cost of living adjustment (COLA) will be 5.9%, the largest increase in nearly 40 years.

S&P 5001.8%
Small Caps1.5%
Intl. Developed2.4%
Intl. Emerging2.1%
Commodities2.1%
U.S. Bond Market0.3%
10-Year Treas. Yield1.57%
US Dollar-0.1%
WTI Oil ($/bl)$82
Gold ($/oz)$1,767

The Week Ahead

  • Industrial Production
  • Housing Starts
  • Existing Home Sales
  • Markit PMI
  • Weekly Jobless Claims

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