October 18-22, 2021 Recap
Equities Cap Third Weekly Gain
Earnings Season Continues Strong
U.S. stocks climbed higher last week with the broad-market S&P 500 posting a third weekly gain. Equity appetites were bolstered on optimism surrounding solid corporate earnings however gains were capped by comments from Fed Chairman Powell saying supply-chain constraints have worsened, hastening further inflation risks ahead. Meanwhile disagreements on tax increases and healthcare proposals intensified, with Democrats now racing to finalize their social and climate policy framework deals as well as meeting an October 31 deadline to vote on a separate infrastructure bill.
For the Week…
The S&P 500 gained 1.66% last week after rising 2.68% during the first two weeks of October. The Dow Jones Industrial Average gained 1.08% and the tech-heavy Nasdaq Composite climbed 1.30%. The S&P 500 posted a new record high on Thursday at 4,549 while the Dow ended the week at fresh all-time high at 35,677.
Early 3Q Earnings Insights
With results in from 117 of the S&P 500 companies, third quarter earnings are surpassing estimates by 13.7% with 82% of firms topping analysts’ projections. Growth-oriented companies are delivering faster revenue growth (18.1% vs. 12.3%) while Value is delivering stronger EPS growth (37.5% vs. 20.8%), the result of margin improvement. Earnings season heats up with 155 S&P 500 constituents reporting earnings this week.
Real Estate Tops Leaderboard
10 of the 11 major sector groups again posted gains last week, led by Real Estate (+3.22%), Healthcare (+2.89%) and Financials (+2.79%). Materials (+0.86%) gained the least, while Communication Services (-0.61%) declined a second straight week.
Treasury Yields Rebound
Treasury prices rallied Friday, dampening stronger weekly yield gains after Fed Chairman Powell signaled the central bank is ready to begin tapering its monthly bond purchases and warned inflation will likely remain elevated into next year. For the week, the benchmark 10-year Treasury yield rose over seven basis points (+0.08%) to 1.64%. The U.S. Dollar Index weakened by 0.31% last week yet remains near its 2021 high. U.S. WTI crude oil futures rose by 2.5% last week to end Friday at $83.42/barrel. Oil capped its ninth straight weekly gain, its longest string of weekly futures gains on record dating back to April 1983.
The auto industry has been hit hard by supply issues, particularly semiconductors. Consumer demand for autos remains high, but car manufacturers aren’t able to increase output to meet demand right now. Motor vehicle output sunk 12.5% last month and has declined seven of the last 10 months. Supply shortages could remain problematic into the first half of 2022.
This report is created by Cetera Investment Management LLC. For more insights and information from the team, follow @CeteraIM on Twitter.
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The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.
The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry grouping (among other factors) designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.
The NASDAQ Composite Index includes all domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite Index is a broad based index.
The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe and is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest 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.
The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe and is a subset of the Russell 1000 Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership.
The Bloomberg Barclays US Aggregate Bond Index, which was originally called the Lehman Aggregate Bond Index, is a broad based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government–related and corporate debt securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency) debt securities that are rated at least Baa3 by Moody’s and BBB- by S&P. Taxable municipals, including Build America bonds and a small amount of foreign bonds traded in U.S. markets are also included. Eligible bonds must have at least one year until final maturity, but in practice the index holdings have a fluctuating average life of around 8.25 years.
The Bloomberg Barclays US Corporate High Yield Index measures the USD-denominated, non-investment grade, fixed-rate, taxable 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, excluding emerging market debt. Payment-in-kind and bonds with predetermined step-up coupon provisions are also included. Eligible securities must have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 6.3 years.
The Bloomberg Barclays US Municipal Bond Index covers the USD-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and prerefunded bonds. Eligible securities must be rated investment grade (Baa3/BBB- or higher) by Moody’s and S&P and have at least one year until final maturity.
The MSCI EAFE Index is designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada. The Index is market-capitalization weighted.
The MSCI Emerging Markets Index is designed to measure equity market performance in global emerging markets. It is a float-adjusted market capitalization index.
The Bloomberg Commodity Index is a broadly diversified index that measures 22 exchange-traded futures on physical commodities in five groups (energy, agriculture, industrial metals, precious metals, and livestock), which are weighted to account for economic significance and market liquidity. No single commodity can comprise less than 2% or more than 15% of the index; and no group can represent more than 33% of the index.
The S&P GSCI Crude Oil Index is a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark for investment performance in the crude oil market.
The S&P GSCI Gold Index, a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark tracking the COMEX gold futures market.
The U.S. Dollar Index is a weighted geometric mean that provides a value measure of the United States dollar relative to a basket of major foreign currencies. The index, often carrying a USDX or DXY moniker, started in March 1973, beginning with a value of the U.S. Dollar Index at 100.000.