for Week Ending September 17th, 2021
WEEKLY MARKET SUMMARY
Global Equities: Global equities slid on Friday, reversing what would have been a modestly positive week, as consumer sentiment shows Americans bracing for more inflation. Strong levels of retail sales and manufacturing business activity had the major indices on track initially, though all major indices closed the week in the red, with the Nasdaq Composite and the S&P 500 both down around -0.5% and the Dow Jones Industrial Average -0.1% lower. The Chinese government had to intervene in the collapse of real-estate developer, Evergrande, whose crushing debt load of over $300B threatened contagion. This led to underperformance of emerging market equities, as the iShares MSCI Emerging Market ETF (EEM) fell by -2.1%. International developed market equities performed slightly worse than the major US indices, -0.8%.
Fixed Income: More volatility in the bond market led to an eventual rise in the yield on the 10-year Treasury Note to 1.37% after starting near 1.33% and hitting a low near 1.25% mid-week. Broad bond ETFs were able to end the week higher, however, as the iShares 20+ Year Treasury Bond ETF (TLT) ended 0.5% higher. Corporate bonds, both investment grade and high yield, also managed modest gains. Refinitiv Lipper reported another $3B of capital inflows into investment grade corporate bond funds, during the week ended 9/15, while high yield funds had -$500M of outflows.
Commodities: Oil prices managed solid gains during the week despite a stronger dollar and weak equity market headwinds. Producers are still struggling to ramp up in the wake of Hurricane Ida, now officially the most devastating storm ever in terms of oil product disruption. Around a quarter of the Gulf of Mexico’s production is still offline. The US West Texas Intermediate crude oil price finished the week over 3% higher, near $72/bl, while the international Brent Crude benchmark finished the up over $75/bl.
WEEKLY ECONOMIC SUMMARY
Sentiment Stabilizes: Consumer sentiment rebounded slightly for the preliminary reading of September, though at 71.0, is not much better than the 70.3 recorded by the University of Michigan in August, which was a 10-year low. The stabilization of the figure is welcome, though consumers have become nervous about the prospects of buying large purchases like homes and cars, with high prices causing anxiety about current conditions. Expectations for future conditions ticked up slightly, though expectations for inflation have continued to rise, with the 1-year expectation of 4.7% and 2.9% for the next 5 years.
Consumer Prices Rise: The Bureau of Labor Statistics released their monthly measure of the Consumer Price Index, confirming what everyday Americans are experiencing on a daily basis. Prices for goods and services are going up. The headline increase was mostly in line with consensus expectations at 0.3% versus the prior month and 5.3% versus the same time last year. Used car and truck prices have finally started to cool off, though energy prices account for a large chunk of the monthly headline increase. The measure excluding food & energy increased by 4% since last year.
Producer Price Index: Both the Philadelphia Federal Reserve and the Empire State Manufacturing Index show a heating up of manufacturing activity so far in September. The survey-fed measures show that business activity in the manufacturing sector remains robust and that managers remain optimistic over the medium term about general demand. New orders started to ebb, however, while general conditions and shipments improved during the month.
CHART OF THE WEEK
The Chart of the Week is a 1-year chart of the SPDR S&P Emerging Markets ETF (SPEM), which represents international emerging market equities. SPEM has broken support at its moving averages, continuing its downtrend as cracks start to show in Chinese financial and property sectors amid a slowing recovery in the world’s second-largest economy and largest emerging market constituent. We continue to have no tactical exposure to emerging market equities yet remain appropriately invested in the asset class within buy-and-hold strategic portions of Hanlon All-Weather Models.
Chart data provided by stockcharts.com. Commentary and opinions are those of Hanlon Investment Management.
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