October 22, 2021

Weekly Market Commentary October 18th to October 22nd 2021

A lighter week in economic data releases was in store for us and the results were mixed. The continuing stories are whether or not the current inflationary environment is transitory as the Fed wants you to think; and when we will get some concrete signs that the Fed will begin to taper their bond-buying – a sure sign that they feel the economy is strengthening and something that will certainly precede rate increases. Supply-chain issues continue to dog the economic rebound as container ships are backing up in ports, manufacturing can’t get the labor needed to run overtime, and products just aren’t getting to the shelves for consumers. All signs point to the issues being temporary, but the longer we are mired in this slowdown, the more skeptical folks are becoming about when we will come out on the other side.

On Monday, we received the Industrial Production and Capacity Utilization figures for the month of September and both disappointed. Industrial production came in at -1.3% when a +0.2% was expected. And Capacity Utilization hit 75.2% when consensus called for 76.5%. Both measures were results of the supply-chain issues the country is currently embroiled in.

In the real estate markets, supplies of building materials continues to hamper the building sector as Building Permits underwhelmed estimates, coming in at 1.59 million vs 1.67 million. Housing Starts also suffered, dropping -1.3% from the previous month. On the positive side, existing home sales surprised to the upside coming in at 6.29 million vs. a 6.10 million consensus. With costs and shortages of materials growing, it’s easy to see why existing home sales are improving compared to building new homes.

On the employment side, Weekly Initial Jobless Claims hit a new pandemic-era low with 290,000 reported which is 6,000 less than last week. Continuing Claims also dropped, coming in at 2.48 million compared to 2.60 million last week. Slow but steady downward progress seems to be the most recent trend in the unemployment sector.

Lastly, the Purchasing Managers’ Indices (PMI) were released on Friday. The Manufacturing PMI came in slightly under consensus at 59.2 while the Services PMI was a big win at 58.2 vs. 55.5 estimate. The thought process behind these numbers is that consumers have money to spend, and if there are less and less goods available due to supply-chain issues, their money is going towards services. Both results are strong as anything above 50 is considered expansionary.

In the markets, equities finished the week mixed. The S&P500 (+0.6%) and Dow Jones Industrials (+0.6%) finished up for the week, while the NASDAQ (-0.3%) dropped. Bond values dropped across the curve as the 2-year US Treasury finished at 0.46%, the 10-year at 1.64%, and the 30-year at 2.07%.

Next week, look for Q3 GDP, Durable Goods Orders, Personal Income and Consumer Spending, Pending Home Sales, and Weekly Jobless Claims.

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