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Indices Reach New Highs

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The start of the fourth quarter was generous to the equity markets as almost every key indices reached new year-long heights. 

10-year Treasury bond yields marked a third consecutive monthly rise, Comex gold rose +$41 but remained underwater compared with the start of the year, crude oil entered the $80 - $90 per barrel range, and the price of a retail gallon of gasoline continued to climb. European equity markets mirrored domestic increases, but Asian equity markets had mixed results.

 
 

U.S. Markets

Increasing 1,976 points, the Dow Jones Industrial Average looked ready for treats, not tricks, with the closing bell at 35,819, up +14½% YTD. Also ending the month on a high note, the S&P 500 gained +298 points with a happy Halloween total of 4,605 points, +18½% YTD. Dressed like Superman, the NASDAQ ended the month at 15,498, increasing +1,050 points, up +17% YTD. Showing its best results since late June, the Russell 2000 crossed the month’s finish line at 2,297 points, increasing +93 with a YTD of +14%.

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European and Asian Markets

The United Kingdom’s FTSE 100 gained +151 points at month’s-end with 7,237 and its highest annual YTD so far at +11%. The Frankfurt DAX Index regained 80% of September’s losses by picking up +428 points and closing the month at 15,688, up +13% YTD. In Paris, the CAC Index enjoyed its best showing this year by gaining +310 points for a YTD of +19%, tapping out at 6,830. Ending a positive two-month streak, the Shanghai Stock Exchange lost -21 points but retained a +2% YTD at 3,547. Hong Kong’s Hang Seng Index showed positive results on this month’s ledger by gaining +802 points as trading closed at 25,003, though with a -7% YTD migraine. Tokyo took a small backward step, losing -40 points as the Nikkei Index ended the month at 28,892 and a +5% YTD.

 

News from China

“China's push to host a "green" 2022 Olympics and Paralympic Winter Games is expected to boost clean energy demand including natural gas consumption over the coming winter-spring heating season, but this has also raised concerns about costlier natural gas as global prices surge to record levels. China committed to the World Health Organization's air quality standards for the games, scheduled to take place over Feb. 4-20 in Beijing, when it first applied to host them in 2014. Since then, the central and provincial governments have taken new measures to cut pollution from industrial, residential, and transportation sources in the region, including switching away from coal in many sectors.

These complement ongoing anti-pollution policies that have previously supported China's natural gas demand growth, including the State Council's Air Pollution Prevention and Control Action Plan 2013-2017, Clean Winter Heating Plan in Northern China 2017-2021, and the Blue Sky Defence War, or three-year action plan for cleaner air, in 2018. The latest salvo of anti-pollution measures underscore the role of policy in China's natural gas demand growth, but also highlight concerns around the price of natural gas in the current market and its role as a transition fuel in the wider decarbonization debate.

China plans to power all games venues in the co-host cities of Beijing and Zhangjiakou with renewables-based electricity and more than 85% of public transport will be from clean energy vehicles including pure electric, natural gas-powered, hydrogen fuel cell and hybrid vehicles, according to state media. Beijing has already cut its coal consumption to 1.73 million mt in 2020 from a peak of 30 million mt, and the share of clean energy including natural gas in its total energy mix has increased to 98.1%, data from the National Energy Administration showed. Natural gas was estimated to account for more than 34% of total energy consumption in Beijing.


Authorities have been cleaning up industrial pollution around the capital for years and also cracking down on small inefficient coal-fired boilers that generate heat. This includes shutting of small units, switching them to natural gas where available or to electricity where the grid is connected. The 2017 action plan for instance targeted phasing out coal boilers in 12 million households, and the 2013 plan imposed a firm grip on newly added production capacity in high energy consumption and high emission industries, accelerate elimination of outdated production capacity and resolutely put an end to illegal projects under construction in industries with serious overcapacity.


Zhangjiakou plans to phase out 6,100 coal-fired boilers with a capacity of 35 mt/hour or below, implement coal-to-gas switching for 36 coal-fired boilers with a capacity of above 35 mt/hour, and move to cleaner heating fuels for 242,130 households as of 2021, local media reported Sept. 10. The city's mayor visited counties and districts to supervise coal-to-gas and coal-to-electricity switching.

Tangshan city, one of China's major steel-producing hubs in Hebei province, plans to cut steel production by 57% in the second half of 2021, shut down coal-fired boilers with a capacity of 35 mt/hour or below, and switch 209,300 households to cleaner heating fuels by end-September to ensure good air quality during the games, local media reported citing environmental notices.

Shanxi province, located in the west of Hebei, has taken strict measures to control industrial pollution, and plans to implement a clean heating fuel switch for 917,400 households by the end-October, state-media Xinhua reported Aug. 19, citing local officials. These measures are expected to boost China's natural gas consumption.” (S&P Global, September 15, 2021.)

 

Fixed Income

The Federal Open Market Committee last met in late September, and their next scheduled meeting is November 2 – 3, with the last meeting of the year on December 14 – 15.

On October 24, Bloomberg reported the following information: “Treasury Secretary Janet Yellen said she expects price increases to remain high through the first half of 2022, but rejected criticism that the U.S. risks losing control of inflation. Inflation is expected to ease in the second half as issues ranging from supply bottlenecks, a tight U.S. labor market and other factors arising from the pandemic improve, Yellen said on CNN’s “State of the Union” on Sunday. The current situation reflects “temporary” pain, she said. “I don’t think we’re about to lose control of inflation,” Yellen said, pushing back on criticism by former Treasury Secretary Lawrence Summers this month. “Americans haven’t seen inflation like we have experienced recently in a long time. But as we get back to normal, expect that to end.”

On Friday, Federal Reserve Chair Jerome Powell sounded a note of heightened concern over persistently high inflation as he made clear that the central bank will begin tapering its bond purchases shortly but remain patient on raising interest rates. Yellen declined to say how she’s advised President Joe Biden on his decision whether to reappoint Powell. However, she said that financial regulation “markedly strengthened” under Powell’s term, as it did during hers and under her predecessor, Ben Bernanke. As the pandemic added stress to the financial markets, “the core of our financial system did very well because of the improvements in capital liquidity, risk management, stress testing,” Yellen said. “And those improvements have stayed in place during the Powell regime.”

10-Year Treasuries concluded the month at 1.55, up +3 basis points and +40% YTD. “U.S. Treasury yields rose last week and the yield curve flattened amid positive economic data and further signals from Federal Reserve Chair Jerome Powell of a taper announcement at the November meeting. The market now prices two full-rate hikes next year and another three in 2023.” (Nuveen, October 25, 2011.)

 

Commodities

Comex gold reversed a two-month downward trend by increasing +$41 per ounce to $1,785 for the yellow metal, but still -6% YTD against its value of $1,892 per ounce on December 31, 2020. West Texas Intermediate Crude oil increased +$7.78 per barrel, jumping from $75.03 in late September to $82.81 at the end of October, gushing a +42% YTD. The average national price for a retail gallon of unleaded gasoline continued its upward climb by rising +13 cents to $3.40 at the pump with a +37% YTD.

 

U.S. Economy

GDP

The advance estimate for Q3 2021 was released October 28 by the Bureau of Economic Analysis (BEA), which concluded the following: “Real gross domestic product (GDP) increased at an annual rate of 2.0 percent in the third quarter of 2021. In the second quarter, real GDP increased 6.7 percent. This information is acknowledged as being incomplete and subject to further revision. The “second” estimate for Q3 will be released on November 24, 2021.”

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Commenting on the dismal performance of the economy in Q3, Reuters reported: “The U.S. economy likely grew at its slowest pace in more than a year in the third quarter as COVID-19 infections flared up, further straining global supply chains and causing shortages of goods like automobiles that almost stifled consumer spending.

The Commerce Department's advance gross domestic product report on Thursday is also expected to show strong inflation, fueled by the economy-wide shortages and pandemic relief money from the government, cutting into growth. Ebbing fiscal stimulus and Hurricane Ida, which devastated U.S. offshore energy production at the end of August, also weighed on the economy.” (October 28, 2021.)

 

Job Growth

The Bureau of Labor Statistics released its Job Openings and Labor Turnover Survey (JOLTS) data on October 12 based on the latest data available, which is from August 2021. “The number of job openings declined to 10.4 million on the last business day of August following a series high in July. Hires decreased to 6.3 million while total separations were little changed at 6.0 million. Within separations, the quits rate increased to a series high of 2.9 percent while the layoffs and discharges rate was little changed at 0.9 percent.

Job openings decreased in several industries with the largest decreases in health care and social assistance (-224,000); accommodation and food services (-178,000); and state and local government education (-124,000). Job openings increased in the federal government (+22,000). Over the 12 months ending in August 2021, hires totaled 72.6 million and separations totaled 66.7 million, yielding a net employment gain of 5.9 million. The Job Openings and Labor Turnover Survey estimates for September 2021 are scheduled to be released on Friday, November 12, 2021.” (The U.S. Bureau of Labor Statistics, October 12, 2021.)

Offering commentary on the jobs report data, CNBC noted the following: “Workers left their jobs at a record pace in August, with bar and restaurant employees as well as retail staff quitting in droves, the Labor Department reported Tuesday. Quits hit a new series high going back to December 2000, as 4.3 million workers left their jobs. Quits have been seen historically as a level of confidence from workers who feel they are secure in finding employment elsewhere, though labor dynamics have changed during the Covid-19 crisis.

Workers have left their jobs because of health concerns and child care issues unique to the pandemic’s circumstances. A total of 892,000 workers in the foodservice and accommodation industries left their jobs, while 721,000 retail workers departed along with 534,000 in health care and social assistance. “There is an enormous labor shortage in the country right now and it is not just because people are quitting or have child care problems, or can’t get to work due to the Delta variant,” wrote Chris Rupkey, chief economist at Fwdbonds. “The economy is strong as a bull, that is why there is a tremendous demand for labor.” The job posting rate fell to 6.6% in August from 7% in July.

That level was just 4.4% a year ago as the economy was still struggling to escape the Covid downturn. Fed officials have said they will not begin increasing interest rates until the labor market firms up.” (CNBC, October 12, 2021.)

 

Existing Housing Sales

“Existing-home sales rebounded in September after seeing sales wane the previous month, according to the National Association of Realtors®. Each of the four major U.S. regions witnessed increases on a month-over-month basis. Total existing-home sales of completed transactions that include single-family homes, townhomes, condominiums, and co-ops, rose 7.0% from August to a seasonally adjusted annual rate of 6.29 million in September. However, sales decreased 2.3% from a year ago (6.44 million in September 2020).

"Some improvement in supply during prior months helped nudge up sales in September," said Lawrence Yun, NAR's chief economist. "Housing demand remains strong as buyers likely want to secure a home before mortgage rates increase even further next year." Total housing inventory at the end of September amounted to 1.27 million units, down 0.8% from August and down 13.0% from one year ago (1.46 million). Unsold inventory sits at a 2.4-month supply at the present sales pace, down 7.7% from August and down from 2.7 months in September 2020.

The median existing-home price for all housing types in September was $352,800, up 13.3% from September 2020 ($311,500), as prices rose in each region. This marks 115 straight months of year-over-year increases. "As mortgage forbearance programs end, and as homebuilders ramp up production – despite the supply-chain material issues – we are likely to see more homes on the market as soon as 2022," said Yun. Properties typically remained on the market for 17 days in September, unchanged from August and down from 21 days in September 2020. Eighty-six percent of homes sold in September 2021 were on the market for less than a month. First-time buyers accounted for 28% of sales in September, down from 29% in August and 31% in September 2020.

NAR's 2020 Profile of Home Buyers and Sellers – released in late 2020 – revealed that the annual share of first-time buyers was 31%. "First-time buyers are hit particularly hard by the historically high home prices as they largely do not have the savings required to buy a home or equity to offset such a purchase," said Yun. Individual investors or second-home buyers, who account for many cash sales, purchased 13% of homes in September, down from 15% in August but up from 12% in September 2020. All-cash sales accounted for 23% of transactions in September, up from both 22% in August and from 18% in September 2020. Distressed sales – foreclosures and short sales – represented less than 1% of sales in September, equal to the percentage seen a month prior and equal to September 2020.

Single-family home sales decreased to a seasonally adjusted annual rate of 5.59 million in September, up 7.7% from 5.19 million in August and down 3.1% from one year ago. The median existing single-family home price was $359,700 in September, up 13.8% from September 2020. Existing condominium and co-op sales were recorded at a seasonally adjusted annual rate of 700,000 units in September, up 1.4% from 690,000 in August and up 4.5% from one year ago. The median existing condo price was $297,900 in September, an annual increase of 9.3%.” (National Association of Realtors, October 21, 2021.)


New Home Sales

“New residential sales statistics for September 2021 of new single‐family houses in September 2021 were at a seasonally adjusted annual rate of 800,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.  This is 14.0 percent above the revised August rate of 702,000, but is 17.6 percent below the September 2020 estimate of 971,000. The median sales price of new houses sold in September 2021 was $408,800.  The average sales price was $451,700. The seasonally‐adjusted estimate of new houses for sale at the end of September was 379,000.  This represents a supply of 5.7 months at the current sales rate. The October report is scheduled for release on November 24, 2021.” (October 26, 2021.)

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industrial production

“U.S. industrial production fell 1.3% in September, much more than expected as the lingering effects of Hurricane Ida continue to stymie activity. The Federal Reserve reported Monday that nearly half, or 0.6%, of the overall decline in total industrial production was attributable to the hurricane. It was the worst showing since February’s 3.1% decline, when severe winter storms hammered much of the country, disrupting a wide swath of manufacturing activities from autos to chemical plants.

Industrial production covers manufacturing, utilities, and mining. The government said manufacturing output fell 0.7%, dragged down by a 7.2% decline in motor vehicles and parts as shortages of semiconductors continued to thwart the industry. Outside of the auto industry, factory output declined 0.3% the government said. Utilities output dropped 3.6% while mining production, which includes crude oil extraction, fell 2.3%.

In a note to clients, economist Daniel Silver of J.P. Morgan said the September data disappointed, “particularly in the manufacturing sector where it looks clear that supply chain issues are continuing to weigh on activity.” Capacity utilization for the entire industrial sector fell 1% in September to 75.2%, about 4.4% below its average. The Fed revised August’s reading down from a 0.4% gain to a 0.1% decline.

Even with the bigger-than-expected decline and August’s downward revision, total industrial production rose at an annual rate of 4.3% in the third quarter. It’s the fifth consecutive quarter with a gain of 4% or more.” (CNBC, October 18, 2021.)

 

trade deficit, Exports, and Imports

In its October 5, 2021 report, the Bureau of Economic Analysis (BEA) presented the following findings: “The goods and services deficit was $73.3 billion in August, up $2.9 billion from $70.3 billion in July, revised. August exports were $213.7 billion, $1.0 billion more than July exports. August imports were $287.0 billion, $4.0 billion more than July imports.

The August increase in the goods and services deficit reflected an increase in the goods deficit of $1.6 billion to $89.4 billion and a decrease in the services surplus of $1.4 billion to $16.2 billion. Year-to-date, the goods, and services deficit increased $140.8 billion, or 33.7 percent, from the same period in 2020. Exports increased $244.3 billion or 17.5 percent. Imports increased $385.1 billion or 21.2 percent.

The global pandemic and the economic recovery continued to impact international trade in August 2021. The full economic effects of the pandemic cannot be quantified in the statistics because the impacts are generally embedded in source data and cannot be separately identified.”

 

Retail Sales

In their “Advance Monthly Sales for Retail and Food Services, September 2021”, issued on October 15, 2021, the Census Bureau announced “Advance estimates of U.S. retail and food services sales for September 2021, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $625.4 billion, an increase of 0.7 percent from the previous month, and 13.9 percent above September 2020.  Total sales for the July 2021 through September 2021 period were up 14.9 percent from the same period a year ago.  The July 2021 to August 2021 percent change was revised from up 0.7 percent to up 0.9 percent.

Retail trade sales were up 0.8 percent August 2021, and up 12.2 percent above last year. Gasoline stations were up 38.2 percent from September 2020, while food services and drinking places were up 29.5 percent from last year.”

 

Consumer Price Index (CPI)

The Bureau of Labor Statistics presented their Consumer Price Index for September 2021 on October 13, 2021, reporting in part: “The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in September on a seasonally adjusted basis after rising 0.3 percent in August. Over the last 12 months, the “All Items” index increased 5.4 percent before seasonal adjustment. The indexes for food and shelter rose in September and together contributed more than half of the monthly all items seasonally adjusted increase. The index for food rose 0.9 percent, the energy index increased 1.3 percent, with the gasoline index rising 1.2 percent. The index for All Items less food and energy rose 0.2 percent in September, after increasing 0.1 percent in August. Along with the index for shelter, the indexes for new vehicles, household furnishings and operations, and motor vehicle insurance also rose in September. The indexes for airline fares, apparel, and used cars and trucks all declined over the month. The All Items index rose 5.4 percent for the 12 months ending September, compared to a 5.3-percent rise for the period ending August. The index for all items less food and energy rose 4.0 percent over the last 12 months, the same increase as the period ending August. The energy index rose 24.8 percent over the last 12 months, and the food index increased 4.6 percent over that period. 
 
The energy index rose 1.3 percent in September, its fourth consecutive monthly increase. The energy index rose 24.8 percent over the past 12 months as all the major energy component indexes increased. The gasoline index rose 42.1 percent over the last year. The index for airline fares continued to fall sharply, decreasing 6.4 percent over the month after falling 9.1 percent in August. The index for all items less food and energy rose 4.0 percent over the past 12 months.”

 

Consumer Sentiment

“The Conference Board Consumer Confidence Index® increased in October, following declines in the previous three months. The Index now stands at 113.8 (1985=100), up from 109.8 in September. The Present Situation Index —based on consumers’ assessment of current business and labor market conditions—rose to 147.4 from 144.3 last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—improved to 91.3 from 86.7.

“Consumer confidence improved in October, reversing a three-month downward trend as concerns about the spread of the Delta variant eased,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “While short-term inflation concerns rose to a 13-year high, the impact on confidence was muted. The proportion of consumers planning to purchase homes, automobiles, and major appliances all increased in October—a sign that consumer spending will continue to support economic growth through the final months of 2021. Likewise, nearly half of respondents (47.6%) said they intend to take a vacation within the next six months—the highest level since February 2020, a reflection of the ongoing resurgence in consumers’ willingness to travel and spend on in-person services.” (The Conference Board, October 26, 2021.)

 

interesting News

Have you heard of the trillion-dollar platinum coin? “A trillion-dollar platinum coin could be minted "within hours of the Treasury Secretary's decision to do so," Philip Diehl, former director of the United States Mint commented. Congressional solutions to the debt-ceiling problem could take weeks to implement, especially if the reconciliation process is used — and time is running out. In case of emergency, a trillion-dollar coin could be deployed to bridge any gap between the money running out and the debt ceiling being raised. The U.S. Mint, which Diehl ran from 1994 to 2000, already produces a one-ounce Platinum Eagle and has no shortage of platinum blanks already in stock. Producing a trillion-dollar Eagle would require only the denomination to be changed. "This could be quickly executed on the existing plaster mold of the Platinum Eagle," says Diehl. Then an automated process would transfer the new design to a plastic resin mold.

Even if Janet Yellen, the Treasury secretary, has no intention of minting such a coin, there is no reason for her not to quietly instruct the Mint director to take those steps a day or two in advance. At that point, a coin could be struck in minutes at the West Point mint. Even if it then needed to be physically deposited at the New York Fed, that's only a short helicopter ride away. "Voila, we'd have bought ourselves the equivalent of a trillion-dollar increase in the debt limit, without any impact on inflation," says Diehl.” (Axios, October 5, 2021.)

 

Final Reflections

It may be difficult to believe but by this time next month, we will already have sated ourselves with Thanksgiving dinner and enjoyed the company of family and friends. The Christmas and holiday season and then the new year are not far behind, making this an ideal time to review your financial situation and consider end-of-the-year adjustments that might limit your tax obligations so you can retain more of your wealth and advance your financial well-being in 2022.

Please contact us if you would like to have a discussion about your portfolio, policies, and any of the other many services we provide. All of us at Carlton Wealth send our best wishes to you and your loved ones.

 

Joseph Maas

Information contained herein is based on data obtained from sources believed to be reliable, however, such information has not been verified by Carlton Financial Group, LLC d/b/a Carlton Wealth or Synergy Financial Management, LLC. The information provided has been prepared and distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy or an offer of advisory services.

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