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Commentary provided by Mark Szycher, Vice President, Investment Specialist, AIG Retirement Services

Market Performance Snapshot* (Week ending October 15, 2021/Year-to-Date)

  • Dow Jones Industrial Average®:  +1.6% | +15.3%
  • S&P 500® Index:  +1.8% | +19.0%
  • NASDAQ Composite® Index:  +2.2% | +15.6%
  • Russell 2000® Index:  +1.5% | +14.7%
  • 10-year U.S. Treasury note yield:  1.57%
    - Down 4 basis points from 1.61% on October 8, 2021
    - Up 65 basis points from 0.92% on December 31, 2020
  • Best-performing S&P 500 sector this week:  Materials, +3.6%
  • Weakest-performing S&P 500 sector this week:  Communication Services, -0.4%

    *Past performance is not a guarantee of future results.

Earnings push equities higher

After struggling to find traction early in the week, equities rose on better-than-expected corporate earnings and positive employment and retail sales data. All major indices finished in positive territory. The S&P 500 notched its best weekly performance since July. The 10-year Treasury yield reversed its recent upward march, dipping as low as 1.51% before rising Friday to finish at 1.57%.

  • Earnings season kicked off with major financial companies – including Bank of America, Citi, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo – reporting strong quarterly results thanks to reduced loan-loss reserves and robust investment banking, equities trading, and asset management activity. Financial stocks have performed well this year, with the S&P financials sector up more than 33%.
  • Delta Air Lines reported its first pandemic-era quarterly profit independent of government assistance. Delta’s CEO said the company “didn’t get derailed by the variant” and is already seeing an increase in bookings after a temporary slump, however rising fuel costs will weigh on fourth quarter profit.
  • Walgreens revenue and profit beat expectations on the back of surging vaccinations, increases in filled prescriptions, and higher over-the-counter medicine sales. UnitedHealth Group beat earnings estimates and raised forecasts for the year as higher membership numbers led to premium growth. The company also noted COVID hospitalizations among its members are down by half since peaking in August.
  • Initial unemployment claims fell to 293,000, dipping below 300,000 for the first time since the pandemic started as employers appear to be holding on to workers in a tight labor market.
  • A separate report of labor market turnover showed job openings remained historically high in August at 10.4 million, though down from July’s record 11.1 million. The rate at which employees quit their jobs reached a record high 2.9%, with especially high levels in retail and leisure and hospitality. Higher quit rates usually signal confidence among workers, though current data could be clouded by COVID concerns.
  • About 300,000 women left the workforce in September, according to an analysis of government data by the National Women’s Law Center, with declines concentrated in government, health services, and education – a potential indication of the ongoing challenge caregiving responsibilities pose to the labor market recovery.
  • An FDA panel recommended a booster shot for all adults who received Johnson & Johnson’s vaccine and for select high-risk populations who received Moderna’s shot.

High energy costs and supply chain woes continue to fuel inflation

Fresh data showed inflation remains elevated as supply chain troubles and rising energy demand push prices up across the economy.

  • September’s Consumer Price Index (CPI) registered a 5.4% year-over-year gain and 0.4% monthly rise. Despite having ticked up from August, the September monthly figure was still below those from March through July. Energy has been a key driver, with prices having surged nearly 25% in the past 12 months.
  • Core CPI, which strips out volatile energy and food prices, rose 0.2% in September and 4.0% year-over-year. Several categories – including used cars, airfares, and apparel – saw prices ease in September, but price increases were felt across most categories.
  • The Producer Price Index (PPI) – reflecting prices along the supply chain before reaching consumers – rose 0.5%in September, slightly below the 0.6% forecast and August’s 0.7%, though the ninth month in a row that prices have risen at least 0.5%. The year-over-year gain was 8.6%.
  • China’s September PPI rose 10.7% year-over-year, above the 10.4% forecast and the fastest pace in 25 years. Rising prices for energy and commodities drove the increase, which could feed through into higher prices around the world given China’s prominent role in global supply chains.
  • Newly released minutes from the Fed’s September meeting revealed concerns about inflation and discussion of a potential timetable for tapering asset purchases starting in mid-November or mid-December and ending next summer. Some officials want the taper to move more aggressively so the bank has more flexibility to raise interest rates if inflation threatens to become entrenched.
  • The White House announced the Port of Los Angeles will join the Port of Long Beach in operating 24/7 to alleviate supply chain bottlenecks contributing to inflation – however labor shortages could hamper the plan’s effectiveness.
  • Increasing consumer prices as measured by the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) drove the announcement of a 5.9% cost-of-living increase in Social Security benefits beginning next year – the largest increase in 40 years. Bigger monthly checks could boost recipients’ spending.
  • Retail sales unexpectedly rose for the second straight month, climbing 0.7% in September versus a projected 0.2% decline. August’s surprise gain was also revised up to 0.9% from 0.7%. Higher prices are likely contributing to the gains.

Final thoughts for investors

Quarterly earnings reports suggest companies are benefitting from strong consumer balance sheets and an eagerness to shake off pandemic limitations. But supply chain issues and persistent inflation will continue to challenge consumers and businesses, placing policymakers in a difficult position as they try to calibrate monetary and fiscal responses. Speak with a financial professional about staying on track toward your long-term goals.

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