Conway’s QuickTake: Week of November 8, 2021
U.S. Equity Markets
- U.S. equities had a strong week following somewhat dovish statements from the Federal Reserve paired with encouraging economic data.
- Several major U.S. large-cap equity benchmarks, including the Dow Jones, the S&P 500 Index, and the Nasdaq Composite hit fresh all-time highs.
- Within the S&P 500 Index, consumer discretionary and IT stocks were the top performers. A fall in rates and regulatory concerns weighed on the financial and healthcare sectors, respectively.
- Third-quarter earnings season finished on a strong note with many companies demonstrating strong profit margins despite rising input costs.
- Year-to-date, domestic equity returns have been robust across the board with the S&P 500 Index up just shy of 27%.
International Equity Markets
- Developed international equities also rose over the week while emerging market equities were roughly flat. Emerging market stocks have barely budged year-to-date while many other global equity markets rose by double-digits.
- European equities were higher last week, benefitting from strong earnings and ECB signaling that interest rates were likely to remain low in the near term.
- Japanese equities posted positive returns lifted by the victory of PM Fumio Kishida’s ruling Liberal Democratic Party.
Credit Markets (Perspectives from our partners at Piton Investment Management)
- Treasury yields were down on the week and the curve flatter on Fed expectations.
- The 10-year yield dropped below 1.50% for the first time since October, while the 30-year bond yield fell 0.065% to 1.89% for the first time since September.
- Last week, The Fed announced it would begin tapering asset purchases, with the timing and pace still heavily tied to the economic recovery.
- The U.S. Treasury also announced cuts to supply, with the 10-year note and 30-year bond both reduced by $2 billion apiece in the next auction cycle.
- Benchmark yields continue to flatten with the front end mostly unchanged and longer term yields up to 0.10% lower.
- With municipal provisions removed from the latest Build Back Better package, sensitivity to Fed actions will continue to drive performance for the remainder of the year.
- Municipal funds saw inflows of $603 million for the 35th consecutive week.
U.S. Economic Data/News
- The Fed announced that it will slow its monthly bond purchases at last week’s policy meeting – potentially paving the way for future rate hikes. Notably, the lack of specificity around the pace of the slowing of bond purchases gives the Fed flexibility if conditions were to change.
- So far, the Fed indicated that it would need to see inflation metrics moderate before raising rates to help avoid adverse consequences. This statement seemed to be interpreted as dovish by the market, which helped push equities higher.
- Economic data continued to be strong. Factory orders rose more than expected in September and October’s job report showed that more jobs were added relative to consensus estimates. The unemployment rate also fell to 4.6%, a far cry from the double-digit figures more immediately following the pandemic.
International Economic Data/News
- The Eurozone has recently been grappling with a resurgence of the coronavirus likely attributable to low vaccination rates in certain areas of the region paired with relaxed restrictions.
- ECB President, Christine Lagarde recently clarified her messaging on monetary policy announcing that interest rate hikes next year are very unlikely and would only occur were conditions to remain favorable.
- In Japan, the ruling Liberal Democratic Party fared much better than expected in the recent general election. The party retained a majority control in the influential lower house of parliament. Attention will likely now turn to the large stimulus package that PM Kishida is likely to draw up. The Bank of Japan is also not likely to follow the U.S. in removing easing efforts at the current time.
- There were continued concerns about the Chinese property sector after another large developer, Kaisa Group, announced it was having debt issues. The company reportedly is looking to sell 18 properties to help fund impending interest payments.
Tuesday, November 9, 2021
- China CPI
- US Core PPI
Wednesday, November 10, 2021
- US CPI
Thursday, November 11, 2021
- UK GDP
Friday, November 12, 2021
- US JOLTS
- University of Michigan Sentiment Survey
Sources: The WSJ, T. Rowe Price Global Markets Weekly Update, GS Weekly Market Monitor
This commentary was written by Craig Amico, CFA®, CIPM®, Associate Director, Noreen Brown, CFA®, Chief Wealth Strategist and Steven Melnick, CFA®, Associate Director at Summit Financial, LLC., an SEC Registered Investment Adviser (“Summit”), headquartered at 4 Campus Drive, Parsippany, NJ 07054, Tel. 973-285-3600. It is provided for your information and guidance and is not intended as speciﬁc advice and does not constitute an offer to sell securities. Summit is an investment adviser and offers asset management and ﬁnancial planning services. Indices are unmanaged and cannot be invested into directly. The periodic returns are represented by the following indices: large cap value by Russell 1000 Value TR Index, large cap blend by Russell 1000 TR Index, large cap growth by Russell 1000 Growth TR Index, mid cap value by Russell Mid Cap Value TR Index, mid cap blend by Russell Mid Cap TR Index, mid cap growth by Russell Mid Cap Growth TR Index, small cap value by Russell 2000 Value TR Index, small cap blend by Russell 2000 TR Index, and small cap growth by Russell 2000 Growth TR Index, international developed by the MSCI EAFE NR USD Index, Emerging Markets by the MSCI EM NR USD Index, U.S. Aggregate Bond by the BBgBarc US Agg Bond TR USD Index, U.S. Municipals by the BBgBarc Municipal TR USD Index, and Corporate High Yield by the BBgBarc US Corporate High Yield TR USD Index. The S&P 500 Index is a market capitalization- weighted Index of 500 widely held stocks often used as a proxy for the stock market. It measures the movement of the largest issues. Standard and Poor’s chooses the member companies for the 500 based on market size, liquidity, and industry group representation.
Included are the stocks of eleven different sectors. The Nasdaq Composite Index is a large market capitalization-weighted index of more than 2,500 U.S.-domiciled stocks. The index’s composition is heavily weighted to the information technology sector, with consumer services, health care and financials the next most prominent industries. The Russell 2000 Index measures the performance of the small cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 1000 Index measures the performance of the large cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index representing approximately 90% of the total market capitalization of that index. It includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable
U.S. equity market. It is constructed to provide a comprehensive, unbiased, and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected. The MSCI EAFE Index (Europe, Australasia, Far East) captures large- and mid-cap representation across developed markets countries around the world, excluding the U.S. and Canada. The index covers approximately 85% of the free float-adjusted market capitalization in each country. The MSCI Emerging Markets Index captures large- and mid-cap representation across emerging markets countries across the world. The index covers approximately 85% of the free float-adjusted market capitalization in each country. The MSCI Europe Index captures large- and mid-cap representation across developed markets countries in Europe. The index covers approximately 85% of the free float-adjusted market capitalization across the European developed markets equity universe. The MSCI China Index captures large- and mid-cap representation across China A shares, H shares, Red chips, P chips and foreign listings. The index covers about 85% of the China equity universe. The Nikkei 225 Index is a stock market index for the Tokyo Stock Exchange which is price-weighted operating in Japanese Yen. The index measures the performance of 225 large, publicly owned companies in Japan from different industry sectors. The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass- throughs), ABS and CMBS (agency and non-agency. The Bloomberg Barclays Municipal Bond Index covers the U.S. dollar-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds. The Bloomberg Barclays U.S. Corporate High-Yield Index measures the U.S. dollar-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded. The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The Caixin China General Services PMI (Purchasing Managers’ Index) is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 private service sector companies. The index tracks variables such as sales, employment, inventories, and prices. A reading above 50 indicates that the services sector is generally expanding; below 50 indicates that it is generally declining.
Data in this newsletter is obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Consult your financial professional before making any investment decision. Past performance is no guarantee of future results. Diversification/asset allocation does not ensure a profit or guarantee against a loss. The attached materials, URLs, or referenced external websites are created and maintained by a third-party, which is not affiliated with Summit Financial LLC. or its affiliates. The information and opinions found within have not been verified by Summit, nor do we make any representations as to its accuracy and completeness. Summit Financial, LLC, and affiliates are not endorsing these third-party services, or their privacy and security policies, which may differ from ours. We recommend that you review these third-party’s policies and terms. 11092021-1046