Weekly Market Update — September 20, 2021

By Hightower St. Louis on September 20, 2021

STOCK MARKETS FALL AGAIN DESPITE ECONOMIC NEWS THAT GENERALLY SURPRISED ON THE UPSIDE

The U.S. equity markets continued to slide in September, although not as much as last week and with the smaller–cap Russell 2000 heading the other way with a modest 0.4% gain
The S&P 500 (-0.6%), NASDAQ (-0.5%) and DJIA (-0.1%) were all in the red, as the markets struggled to find footing despite what most consider decent economic news on balance
Nine of the 11 S&P 500 sectors were lower on the week, with Materials (-3.2%) and Utilities (-3.1%), underperforming dramatically while Energy (+3.3%) outperformed dramatically
Wall Street received a lot of news that surprised the experts, including that retail sales increased 0.7% in August, CPI was better than expected with a gain of 0.3% and the September Philadelphia Fed Index landed at 30.7, much higher than consensus expectations of less than 20
Glass–half–empty investors pointed to the fact that the S&P 500 traded below its 50–day moving average
The 10–year Treasury yield increased three basis points to 1.37%
The Volatility Index, as measured by the VIX, appeared to be trending lower but then it spiked on Thursday and Friday to end the week higher than where it began
WTI Crude added about $2 to the price of a barrel, ending the week three cents shy of $72/barrel

Weekly Market Performance

Stocks Retreat Again Continuing September’s Decline

U.S. equity markets headed south again this week, with the exception of the smaller–cap Russell 2000, which ended the week up a modest 0.4%. The Russell 2000’s gain was, to many, mostly the result of quadruple witching–options expiration activity at the end of the week.

The larger-cap markets just struggled to find their footing, despite what most consider to be positive news. The same clouds that hung over the markets last week seemed to remain this week too, as concerns about the Delta variant, China’s slowdown, the impending debt ceiling fight, the Fed’s unknown tapering schedule and a potential infrastructure bill with rising taxes all weighed heavily on Wall Street all week.

Add to those worrisome clouds the “peak growth narrative” and the self–fulfilling prophecy of September being the worst month for stocks and it was clear why sellers outnumbered the buyers by a decent amount.

In US economic news:

The Empire State manufacturing index leapt significantly to 34.3 in September from 18.3 in August
Industrial production rose a modest 0.4% in August
Manufacturing output rose 0.2%, ahead of expectations
Jobless claims rose 20,000 to 332,000 in the week ended September 11, more than expected, but the four-week moving average was consistent
September’s Philadelphia Fed manufacturing index exceeded expectations at 30.7, well over consensus expectations
Retail sales surprised most as they increased 0.7% in August whereas expectations were for a decline of about 0.8%

Inflation Getting Worse

On Tuesday, the Bureau of Labor Statistics reported that the Consumer Price Index for All Urban Consumers increased 0.3% in August on a seasonally adjusted basis after rising 0.5% in July. Over the last 12 months, the All Items index increased 5.3%.

A few highlights:

The indexes for gasoline, household furnishings and operations, food, and shelter all rose in August and contributed to the monthly all items seasonally adjusted increase.
The energy index increased 2.0%, mainly due to a 2.8% increase in the gasoline index.
The index for food rose 0.4%, with the indexes for food at home and food away from home both increasing 0.4%.

Here is some good news on the monthly increases (maybe):

And here is some good news on the annual increases (maybe):

The index for dairy and related products declined in August, falling 1.0% after rising in each of the previous 4 months.
There was a sharp decline in the index for food at employee sites and schools, which fell 17% in August.
The index for airline fares fell sharply, decreasing 9.1% over the month.
The index for used cars and trucks declined 1.5% in August, ending a series of five consecutive monthly increases.
- The all items index rose 5.3% for the 12 months ending August, a smaller increase than the 5.4% rise for the period ending July.
- The index for all items less food and energy rose 4.0% over the last 12 months, also a smaller increase than the period ending July.
- The prescription drugs index fell 2.7%, one of the few indexes to show a 12–month decline.

Bad Inflation News Outweighs the Good – By a Lot

Unfortunately, there is much more bad inflation news versus good, as the table below reveals.

Retail Sales Increase Modestly

On Thursday, the U.S. Census Bureau announced that estimates of U.S. retail and food services sales for August 2021 were $618.7 billion, an increase of 0.7% from the previous month, and 15.1% above August 2020.

Total sales for the June 2021 through August 2021 period were up 16.3% from the same period a year ago.
The June 2021 to July 2021 percent change was revised from down 1.1% to down 1.8%.
Retail trade sales were up 0.8% from July 2021, and up 13.1% above last year.
Clothing and clothing accessories stores were up 38.8% from August 2020, while gasoline stations were up 35.7% from last year.

Consumer Sentiment Drops

On Friday, the University of Michigan reported that Consumer Sentiment, as measured by their Consumer Survey, reversed the steep falloff witnessed in August. But the overall sentiment was still poor.

From the release: “the steep August falloff in consumer sentiment ended in early September, but the small gain still meant that consumers expected the least favorable economic prospects in more than a decade. Just two components posted additional declines: buying attitudes for household durables fell again in early September to a low reached only once before in 1980, and long term economic prospects fell to a decade low. The decline in assessments of buying conditions for homes, vehicles, and household durables left all three near all-time record lows (see the chart), with the declines due to spontaneous references to high prices.”

Small Businesses Affected Significantly by COVID

The National Federation of Independent Businesses released its latest COVID survey to illustrate how the pandemic has specifically affected small businesses.

“Key findings include:

Supply Chain Disruptions

Half of small business owners reported that supply chain disruptions have a significant impact on their business, up from 32% two months ago.
Over half (55%) of owners impacted report that the supply chain disruption is worse than it was three months ago.
The vast majority (86%) of owners anticipate supply chain disruptions will continue for at least the next five months or more.

Staffing Shortages

Over one-quarter (27%) of small employers are currently experiencing a significant staffing shortage and another 18% are currently experiencing a moderate staffing shortage.
Of those small employers currently experiencing a staffing shortage, 25% are experiencing a significant loss of sales opportunities and 27% a moderate loss of sales opportunities because of their inability to fill open positions.
About half (49%) of small employers are receiving fewer job applications for their open positions than they received one month ago, and 36% are receiving about the same amount.
Small employers are adjusting to attract employees for open positions. Seventy–seven percent reported increasing wages, 17% increased paid time off, 16% offered or enhanced hiring bonuses, 18% offered or enhanced referral bonuses, and another 21% offered or enhanced health insurance benefits.
Small business owners are also making business operation adjustments to compensate for the staffing shortage. Forty–one percent of owners are offering more hours to part–time employees, 64% are offering overtime to full–time employees, and virtually all (88%) of owners reported that the owner(s) are working more hours.”

Sources

bls.gov; census.gov; umich.edu; msci.com; fidelity.com;
nasdaq.com; wsj.com; morningstar.com

Omar Qureshi, CIMA®, CPWA®

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