Conway’s QuickTake: Week of September 20, 2021

Here’s What Happened Last Week:

U.S. Equity Markets
• Most domestic equities were negative last week aside from small-cap stocks. Weighing on investor sentiment were concerns around supply chains and elevated company valuations. In addition, Friday was a triple witching day in which options expired on individual stocks, stock market indices, and index futures contracts. This typically increases the volatility and volume of equities.
• Some newsworthy stocks to mention include Wynn Resorts (WYNN) which faces a headwind given the higher expected number of regulations imposed on the gambling industry. Chevron (CVX) committed to spend at least $10 billion through 2028 on low-carbon fuels enhancing their “green spending” profile. Also, Invesco (IVZ) has initiated talks to acquire State Street’s (STT) asset management business. If a deal is struck, it would be one of the largest in history as Invesco oversees $1.5 trillion in assets while State Street manages nearly $4 trillion.
• Within the S&P 500 Index, two sectors were positive for the week. Energy stocks led after oil prices rose and the consumer discretionary sector benefited from Tesla’s strong performance. The smaller sized materials and utilities sectors lagged.
• Small-cap stocks modestly rose while large- and mid-caps declined. Value slightly beat growth within the large-cap portion, but the opposite was true in the mid- and small-cap portions.

International Equity Markets
• Developed markets non-U.S. equities beat emerging markets equities in a relative sense although both broad regions were negative and underperformed U.S. equities.
• European stocks fell amidst delta variant concerns. On the COVID front, Italy is imposing fines for unvaccinated workers and the U.K. is offering vaccines to kids between 12-15 years of age.
• Japanese stocks rose as campaigning began to succeed Yoshihide Suga as the next prime minister.
• Chinese equities plummeted following weak economic reports, renewed localized coronavirus outbreaks, and the threat of stricter regulations enacted on the large Macau gaming industry.

Source: iStock 2021

Credit Markets (Perspectives from our partners at Piton Investment Management)
• Yields continued to drift higher on Friday as the U.S. 10-year note touched 1.38%, the highest in September. Rates began to rise last week as investors looked past weaker than expected CPI data and saw increases in retail sales and manufacturing data.
• Borrowers continue to feel incentivized to issue debt as rates remain historically low. Issuance continues to ramp up as over $38 billion in new issuance was sold last week. This takes September total new issuance to $119 billion, on track to beat prior estimates near $140 billion.
• Fund flows for 2021 show no signs of slowing as they have topped $80 billion YTD nearing 2019 inflows of $108 billion. Average investment grade spreads remain ~ 86 bps above Treasuries.
• Municipal yields were largely unchanged on the week outperforming Treasuries. The Bloomberg Municipal Bond Index was flat.
• Municipal funds recorded their 28th consecutive week of inflows adding approximately $1.26 billion, most of which was in long-term investment grade funds.

U.S. Economic Data/News
• The week started with Richard Neal, the Chair of the House Ways and Means Committee, proposing sweeping tax regime changes up for debate. First, the top income tax rate would jump from 37% to 39.6% for individuals/families earning over $400,000/$450,000 annually. The long-term capital gains tax rate would be increased from 20% to 25%, while the prior proposal put forth by President Biden to tax unrealized capital gains of an investor after their death was met with heavy criticism. In addition, there is momentum for tax cuts aimed at lower income earners and families. All proposals will run the gamut through revisions and Congress before becoming a law.
• The Labor Department reported a 0.1% increase in core consumer prices (excluding food and energy), which is less than the 0.3% expected and the smallest gain since February. The shortfall can be attributed to lower airfare and used car prices.
• In other news, the Commerce Department reported August’s retail sales, outside of autos, rose 1.8% which was a stark contrast versus consensus expectations for a decline. Initial weekly jobless claims came in at 332,000, a marginal increase from the week prior but still depressed. Also, policymakers are expected to discuss the first steps required to begin tapering monthly asset purchases in the next Federal Open Market Committee meeting on September 21st – 22nd.

International Economic Data/News
• The U.K.’s inflation spiked to 3.2%, its highest level in over nine years which was attributed to lower restaurant prices in 2020 that have quickly risen this year. Separately, U.K. company payrolls rose by 241,000 in August while retail sales unexpectedly fell 0.9%, a fourth straight monthly decline.
• Data indicated that Japan’s exports rose 26.2% year over year through August. While this is strong, it is less than expected and lower than last month’s 37% gain. Meanwhile Japanese manufacturers confidence levels fell to a five-month low as the Reuters Tankan Index fell to 18 from 33 in August. Weakness is tied to the rise in new infections and the ongoing global semiconductor chip shortage.
• Dominating Chinese headlines is the embattled future that property giant Evergrande faces on the brink of collapse. The company has more than $300 billion in unpaid debt, and experts worry the fallout would be far reaching. Contagion could possibly spread to markets outside of China.

Looking ahead…

Wednesday, September 22, 2021
• Fed Rate Decision
• Bank of Japan Policy Rate
Thursday, September 23, 2021
• Bank of England Rate Decision
• Initial Jobless Claims (US)
• US Manufacturing PMI
Friday, September 24, 2021
• New Home Sales

Sources: The WSJ, T. Rowe Price Global Markets Weekly Update

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 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.
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