Week in Review: October 22, 2021
October 25, 2021
Recap & Commentary
Markets ended the week higher despite ongoing concerns about supply chains and attendant inflation. After falling just over 5% during September, the S&P 500 managed to set a new record high on Thursday. Further progress and increased clarity into President Biden’s proposed spending bill likely had a positive impact on the markets. While the specifics of the bill continue to be debated, the overall size has shrunk considerably from $3.5T to $2.0T. And in an effort to ensure the necessary 50 votes for passage, certain aspects of the bill appear to have been removed, including increased corporate taxes.
Speaking at a panel discussion on Friday, Federal Reserve Chair Jerome Powell indicated that the Fed is “on track’ with respect to its tapering plans. Most economists expect the Fed to officially announce its tapering plans at its next meeting in early November. On the topic of supply chains and inflation, Powell stated that, “The risks are clearly now to longer and more persistent bottlenecks, and thus to higher inflation.” Powell did note, however, that the Fed was prepared to act should inflation move persistently higher.
Through Friday, 23% of S&P 500 companies had reported 3Q21 earnings. Thus far, 84% of companies have exceeded their consensus earnings estimate, while 75% have surpassed their revenue estimate. According to industry group FactSet, aggregate S&P 500 earnings are expected to increase 33%, up from 28% at the start of earnings season.
Economic Bullet Points
Housing data remained volatile highlighting the ongoing crosscurrents of elevated building material prices, supply chain bottlenecks, labor shortages, extremely low mortgage rates, and continued strong demand.
Housing starts fell slightly in September to their lowest level in five months, defying expectations for a small increase. Building permits, considered a leading indicator of future activity, fell nearly 8% to their lowest level in a year. The decline was led by a 21% decrease in permits for multifamily buildings.
Existing home sales jumped 7% to an annualized pace of 1.555M, the fastest pace since January. Improved supply, strong demand, and the desire to take advantage of still low mortgage rates were all cited as factors for the increase. Compared to a year ago, the median price rose 13% to $352.8K.
Industrial production unexpectedly declined 1.3% in October, versus an expected 0.2% increase. Within the headline number, manufacturing fell 0.7%, impacted by a 7.2% decline in motor vehicles and parts, reflecting ongoing supply chain issues, in particular a shortage of semiconductors.
Data from industry group Markit showed manufacturing activity in October fell to its slowest pace in seven months, while services activity rose to their fastest pace in three months. Both sectors remained firmly in expansion territory.
Weekly jobless claims fell 6K to 290K, a new recovery low. Continuing claims also dropped to a new recovery low of 2.48M.
The first Bitcoin ETF began trading in the US. Interestingly, the ETF does not actually own Bitcoin, but instead invests in Bitcoin futures in a manner similar to how many commodity funds offer exposure to commodity prices.
|U.S. Bond Market||-0.4%|
|10-Year Treas. Yield||1.63%|
|WTI Oil ($/bl)||$84|
The Week Ahead
- Third Quarter GDP
- Consumer Confidence
- PCE Inflation
- Consumer Spending
- New Home Sales
- Pending Home Sales
- Durable Goods Orders
- Weekly Jobless Claims