Increased Inflation Expectations, Rising Energy Costs and Debt Ceiling Concerns Push Markets Back in Final Week of Q3

Market Recap Week ending 10.1.21

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Financial markets took a step back in the final week of the third quarter.  Increased inflation expectations pushed US Treasury yields higher, which induced valuation concerns on large-cap growth stocks. Rising energy costs were evident throughout the week and supported by supply concerns in the UK and China. Questions surrounding the infrastructure bill persisted while politicians found a resolution to fund the government through December 3rd.   Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen were in front of the Senate Banking Committee. Yellen reiterated that the debt ceiling would be exhausted by October 18th, and politicians needed to find a solution.  J Powell testified that inflation would likely be elevated for a while but was comfortable having it run above the Fed’s soft mandate of 2%.  Of note, Dallas Federal Reserve President Kaplan and Boston Federal Reserve President Rosengren tendered their resignation.  

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On the corporate news front, pharmaceutical company Merck announced that their oral antiviral Covid pill reduced hospitalizations and death by 50% and will seek emergency use authorization from the FDA.  Economic data for the week was mixed.  

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The S&P 500 lost 2.2% for the week, the Dow gave back 1.4%, the NASDAQ led declines with a 3.2% loss, and the Russell 2000 shed 0.3%.  The US Treasury curve steepened in what was another week of very volatile trade.  The 2-year note yield fell one basis point to 0.26%, while the 10-year bond yield increased one basis point to 1.47%.  However, intra-week, the 10-year yield touched 1.58%.  Oil prices gained another 2.5% or $1.87 to close at $75.87 a barrel.  Gold prices were up slightly, gaining $7 to close at $1758.80 an Oz.  

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High-frequency employment data was a bit weaker than expected.  Initial Claims came in at 362k versus expectations of 340K, and Continuing Claims came in at 2.802 million.  Interestingly, this weakness comes as job openings surged.  Also, a bit of a downer was the final reading of the Conference Board’s Consumer Confidence which ticked down to 109.3; the consensus estimate was 114.4, and the reading in August came in at 115.2.  Headline PCE prices were in line, as were the Core figures, but both data sets showed significant gains on a year-over-year basis, 4.3% and 3.6%, respectively, which are 30-year records! ISM manufacturing data continued to show signs of expansion, but data underneath the hood showed persistent problems in sourcing raw materials, transportation, and labor.  In China, ISM Manufacturing data signaled contraction coming in at 49.6.  

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