The start of the fourth quarter was generous to the equity markets as almost every key indices reached new year-long heights.
13 min read
Joe Maas, CFA, CFP®, CLU®, ChFC, MSFS, CCIM™, CVA, ABAR, CM&AA : Sep 9, 2021 9:24:33 AM
The beginning of September found the nation with several events that will influence the markets. On August 1, 49.6% of all Americans were fully vaccinated compared with 62% on September 1. With the recent ruling from the Supreme Court that eviction protections are illegal, approximately 3½ million households could lose their home when the eviction moratorium is lifted. The United States has ended its presence in Afghanistan after almost 20 years, airlifting approximately 120,000 people from Kabul to destinations in Europe and the U. S., and has affected millions of people from New Orleans to Boston.
August saw a continued upswing for the key indices tracked in this report as 10-year Treasury yields increased slightly, Comex gold dipped a bit, crude oil retreated below the $70 per barrel price, and gasoline slipped only 1 cent.
The Dow Jones Industrial Average gained +425 points and closed the month at 35,360 with a YTD of +13.5%. Enjoying its seventh consecutive month of increase, the S&P 500 looked forward to Labor Day with a gain of +127 points at 4,522 and a YTD of +17%. Coming on strong, the NASDAQ picked up +587 points for a YTD of +15.5% and rang the cash register at 15,259. Falling into fourth place after leading the pack for much of 2021, the Russell 2000 added +47 points for a month-end close of 2,273 and a YTD of +13.25%.
Our European neighbors also enjoyed a positive August with Britain’s FTSE 100 increasing +87 points for an autumn salute of 7,119, up 9.25% for the year. The Frankfurt DAX heralded its biggest gain since the end of May by increasing +291 points for a celebratory close of 15,835 and a YTD of +13.25%. Paris also found jubilation with its increase of +68 points and an August 31 close of 6,680, a gain of +17% so far this year. Asian markets were mixed with the Shanghai Stock Exchange regaining part of what it lost in July, rising +146 points to 3,543, an annual gain of just +2%. The Hang Seng index in Hong Kong dried its tears after its third consecutive monthly loss, down -154 points to 25,807 and an annual loss of -5.5%. Tokyo did better as the Nikkei reversed the downward trend of the last two months by increasing +1,055 points and looking forward to a brighter September by starting at 28,338 and a slight YTD of +3%.
“The tensions between Lithuania and China may seem like a minor distraction next to Afghanistan, but they will play a central role at the meeting of EU foreign ministers in Slovenia this week, at which the broader relationship with Beijing is on the agenda. The ferocity of Beijing’s response to the announcement, in late July, that a “Taiwanese” representative office would soon open in Vilnius appears to have caught the Lithuanian government by surprise, which is calling on other EU member states to send a strong message of solidarity. In addition to widely-reported steps to halt rail traffic and eliminate food export permits, China closed the Hong Kong bank accounts of a leading Lithuanian telecommunications firm. The fear in Vilnius is of a total ban on imports and exports—a step that officials say would hurt. While only about 1 percent of the country’s exports go to China, Lithuania imports nearly four times as much from China—including essential inputs such as steel and semiconductors. Local companies are already scrambling to reorganize their supply chains.” (The German Martial Fund, September 1, 2021.)
The Federal Open Market Committee held its last meeting on July 27 – 28, with its next meeting scheduled for September 21 – 22. At the July meeting, interest rates were held to their existing range of 0% to 0.25. 10-Year Treasuries gained approximately +7 basis points and ended the month at 1.30, an annual increase of +28%. Aside from last month, the yield has not been this low since January when the yield was 1.11; the yield reached a peak of 1.74 at the end of March.
During August, Comex gold lost -$11.60 per ounce, finishing August at $1,805.30, a decline of -4.5% since the start of the year when an ounce was valued at $1,892. West Texas Intermediate Crude oil fell below the $70 per barrel floor to $68.74, a loss of -$4.88, the first decline in price since March 31; crude oil currently brags a +29.5% YTD. A retail gallon of gasoline remained steady for the second consecutive month, down only a penny, as a national average per-gallon price of $3.15 represented a +32% YTD.
“Real gross domestic product (GDP) increased at an annual rate of 6.6 percent in the second quarter of 2021, according to the second estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 6.3 percent. The increase in second-quarter GDP reflected the continued economic recovery, reopening of establishments, and continued government response related to the COVID-19 pandemic. In the second quarter, government assistance payments in the form of loans to businesses and grants to state and local governments increased, while social benefits to households, such as the direct economic impact payments, declined.” (Bureau of Economic Analysis.)
The U.S. Bureau of Labor Statistics (BLS) released its July employment report, the Job Openings and Labor Turnover Survey (JOLTS) on August 6. According to Elise Gould, a senior economist with the Economic Policy Institute, “The latest JOLTS report from the Bureau of Labor Statistics reveals a notable uptick in hires and the hires rate, up nearly 700k and 0.4 percentage points between May and June while layoffs continue to trend down. Altogether a promising sign for an economy continuing to recover. The uptick in the quits rate is notable, likely due in part to increased opportunities for workers to find better job matches, potentially with higher wages or safer working conditions in the lingering pandemic. Using the last three months of data by sector to smooth data volatility, it's clear that there are still many sectors with more unemployed workers than job openings. To be clear, these comparisons only include those who are in the official measure of unemployment. It cannot be emphasized enough that the official unemployment measure misses millions of workers that left the labor force, were misclassified as employed not at work, or experienced a drop in pay or hours because of the pandemic. Remember today’s JOLTS data are for June. What we know from the latest jobs report for July is that the labor market grew by 943,000 jobs, a sign of continued strength in the recovery.” (August 9, 2021.)
“Contracts to purchase previously owned U.S. homes declined for the second consecutive month in July in step with limited supply that's been unable to keep up with demand from potential homebuyers. The National Association of Realtors (NAR) said on Monday its Pending Home Sales Index, based on contracts signed last month, fell 1.8% after dropping a revised 2.0% in June. Economists polled by Reuters had forecast pending home sales would increase 0.4%. Pending home contracts are seen as a forward-looking indicator of the health of the housing market because they become sales one to two months later. "The market may be starting to cool slightly, but at the moment there is not enough supply to match the demand from would-be buyers," Lawrence Yun, NAR's chief economist, said in a statement. "Inventory is slowly increasing and home shoppers should begin to see more options in the coming months." Home prices have surged nationwide in large part due to limited supply, with the median price for new single-family homes now topping $390,000 and for existing homes just under $360,000. Compared with one year ago, pending home sales were down 8.5%. "The highly competitive real estate market we saw in the first six months of 2021 squeezed available inventory to record-lows and pushed prices to new highs just as summer emerged, leaving many first-time buyers feeling frustrated," said George Ratiu, manager of economic research for Realtor.com. "However, in a noticeable shift, homeowners responded to market trends and started listing homes in larger numbers." (Reuters, August 30, 2021.)
Sales of new U.S. single-family homes increased in July after three straight monthly declines, but housing market momentum is slowing as surging housing prices amid tight supply sideline some first-time buyers from the market. Though the report from the Commerce Department on Tuesday showed a big increase in new housing inventory, the jump was driven by a record rise in homes that are yet to be built. Builders are taking longer to complete houses, hobbled by expensive raw materials as well as scarce land and workers.
"While demand for new homes remains strong, high prices and backlogs in construction will temper sales in the months ahead," said Nancy Vanden Houten, a U.S. economist at Oxford Economics in New York
"Homebuilders are reportedly turning away buyers as they attempt to reduce the backlog of sales." New home sales rose 1.0% to a seasonally adjusted annual rate of 708,000 units last month. Economists polled by Reuters had forecast new home sales, which account for 10.6% of U.S. home sales, increasing to a rate of 700,000 units in July. Sales dropped 27.2% on a year-on-year basis in July. The median new house price soared 18.4% from a year earlier to a record $390,500 in July. Sales jumped to a rate of 993,000 units in January, the highest since the end of 2006, driven by historically low mortgage rates and a desire for spacious accommodations as Americans worked from home and took online classes during the COVID-19 pandemic.
The market for new homes is being driven by an acute shortage of previously owned houses. But builders have struggled to fully take advantage of the supply squeeze, hampered by soaring lumber prices as well as shortages of other building materials and household appliances. Though lumber prices have dropped sharply from May's record highs, they remain above their pre-pandemic levels. Reports this month showed single-family building permits fell in July, while confidence among homebuilders hit a 13-month low in August. (Reuters, August 24, 2021.)
“U.S. manufacturing activity unexpectedly picked up in August amid strong order growth, but a measure of factory employment dropped to a nine-month low, likely as workers remained scarce. The Institute for Supply Management (ISM) said on Wednesday its index of national factory activity inched up to 59.9 last month from a reading of 59.5 in July. A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the U.S. economy. Economists polled by Reuters had forecast the index falling to 58.6. Manufacturing is holding up even as spending is rotating back to services from goods because of vaccinations against COVID-19. But shortages of labor and raw materials, especially semiconductors, remain a constraint.
The ISM survey’s forward-looking new orders sub-index rebounded to a reading of 66.7 last month after two straight monthly declines. Demand is being driven by businesses desperate to replenish stocks after inventories were drawn down sharply in the first half of the year. Inventory accumulation, which is expected to be the main driver of gross domestic product growth for the rest of this year and into 2022, has been frustrated by supply constraints. Scarce inputs have boosted prices for both manufacturers and consumers. But there appears to be light at the end of the tunnel. The ISM measure of delivery performance of suppliers to manufacturing organizations eased further in August, indicating some improvement in the pace of deliveries.
The survey’s measure of prices paid by manufacturers fell to an eight-month low of 79.4 from a reading of 85.7 in July. This measure has dropped from a record 92.1 in June. It was the latest indication that inflation has probably peaked. Data last week showed the Federal Reserve’s preferred inflation measure recorded its smallest monthly gain in five months in July. But worker shortages persist. A measure of factory employment contracted last month and fell to its lowest level since November. That could pose some downside risk to job growth in August. The worker shortages led to a building up of the backlog of uncompleted work in August. (Reuters, September 1, 2021.)
In its June report, the Bureau of Economic Analysis (BEA) stated “June exports were $207.7 billion, $1.2 billion more than May exports. June imports were $283.4 billion, $6.0 billion more than May imports. Year-to-date, the goods and services deficit increased $135.8 billion, or 46.4 percent, from the same period in 2020. Exports increased $150.9 billion or 14.3 percent. Imports increased $286.7 billion or 21.3 percent.
Exports of goods increased $0.3 billion to $145.9 billion in June. Industrial supplies and materials increased $1.2 billion. Crude oil increased $1.6 billion. Foods, feeds, and beverages decreased $1.2 billion. Soybeans decreased $0.5 billion. Exports of services increased $0.9 billion to $61.8 billion in June. Travel increased $0.4 billion. Transport increased $0.2 billion.
Imports of goods increased $4.3 billion to $239.1 billion in June. Industrial supplies and materials increased $4.6 billion. Nonmonetary gold increased $1.2 billion. Finished metal shapes increased $0.5 billion. Iron and steel mill products increased $0.4 billion. Organic chemicals increased $0.4 billion. Capital goods increased $0.8 billion. Consumer goods decreased $1.6 billion. Pharmaceutical preparations decreased $0.8 billion. Cotton apparel and household goods decreased $0.7 billion. Automotive vehicles, parts, and engines decreased $0.7 billion. Imports of services increased $1.6 billion to $44.3 billion in June. Transport increased $1.0 billion. Travel increased $0.6 billion.
“The June figures show surpluses, in billions of dollars, with South and Central America ($4.5), Hong Kong ($1.7), Brazil ($1.5), and Singapore ($0.6). Deficits were recorded, in billions of dollars, with China ($27.0), European Union ($19.6), Mexico ($7.2), Germany ($6.3), Canada ($5.5), Japan ($4.9), Italy ($3.7), India ($3.5), Taiwan ($3.3), South Korea ($2.8), France ($1.9), Saudi Arabia ($0.3), and United Kingdom (less than $0.1).” (BEA, August 5, 2021.)
The July 2021 Advance Monthly Sales for Retail Trade and Food Services report was released on August 17, 2021, by the Census Bureau, and it stated the following in part: “Advance estimates of U.S. retail and food services sales for July 2021, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $617.7 billion, a decrease of 1.1 percent from the previous month, but 15.8 percent above July 2020. Total sales for May 2021 through July 2021 period were up 20.6 percent from the same period a year ago. Retail trade sales were down 1.5 percent from June 2021, but up 13.3 percent above last year. Clothing and clothing accessories stores were up 43.4 percent from July 2020, while food services and drinking places were up 38.4 percent from last year. The August 2021 Advance Monthly Retail report is scheduled for release on September 16, 2021.
Released on August 17, the Bureau of Labor Statistics reported “The Consumer Price Index for All Urban Consumers increased 0.5 percent in July on a seasonally adjusted basis after rising 0.9 percent in June. Over the last 12 months, the “all items index” increased 5.4 percent before seasonal adjustment. The indexes for shelter, food, energy, and new vehicles all increased in July and contributed to the monthly all items seasonally adjusted increase. The food index increased 0.7 percent in July as five of the major grocery store food group indexes rose, and the food away from home index increased 0.8 percent. The energy index rose 1.6 percent in July, as the gasoline index increased 2.4 percent and other energy component indexes also rose. The index for all items less food and energy rose 0.3 percent in July after increasing 0.9 percent in June. Along with shelter and new vehicles, the indexes for recreation, for medical care, and for personal care increased in July. The index for used cars also increased in July, but the 0.2-percent advance was much smaller than in recent months. The index for motor vehicle insurance declined in July, and the index for airline fares fell slightly.
The “all items index” rose 5.4 percent for the 12 months ending July, the same increase as the period ending June. The index for all items less food and energy rose 4.3 percent over the last 12 months, while the energy index rose 23.8 percent. The food index increased 3.4 percent for the 12 months ending July, compared to a 2.4-percent rise for the period ending June.”
As reported on August 12 by the Bureau of Labor Statistics, “The Producer Price Index for final demand increased 1.0 percent in July, seasonally adjusted. Final demand prices rose 1.0 percent in June and 0.8 percent in May. On an unadjusted basis, the final demand index moved up 7.8 percent for the 12 months ended in July, the largest advance since 12-month data were first calculated in November 2010. Nearly three-fourths of the July increase in the final demand index can be traced to a 1.1-percent advance in prices for final demand services. The index for final demand goods rose 0.6 percent. Prices for final demand less foods, energy, and trade services moved up 0.9 percent in July, the largest advance since climbing 1.0 percent in January. For the 12 months ended in July, the index for final demand less foods, energy, and trade services rose 6.1 percent, the largest increase since 12-month data were first calculated in August 2014.”
The Bureau of Labor Statistics published its July report on August 6 and presented the following information: “Total non-farm payroll employment rose by 943,000 in July, and the unemployment rate declined by 0.5 percentage point to 5.4 percent. Notable job gains occurred in leisure and hospitality, in local government education, and in professional and business services.” On August 26, the Department of Labor published this information: “In the week ending August 21, the advance figure for seasonally adjusted initial claims was 353,000, an increase of 4,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 348,000 to 349,000. The 4-week moving average was 366,500, a decrease of 11,500 from the previous week's revised average. This is the lowest level for this average since March 14, 2020 when it was 225,500.”
The Conference Board Consumer Confidence Index® declined in August, following a decrease in July (a downward revision). The Index now stands at 113.8 (1985=100), down from 125.1 in July. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—fell to 147.3 from 157.2 last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—fell to 91.4 from 103.8.
Consumer confidence retreated in August to its lowest level since February 2021 (95.2),” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Concerns about the Delta variant—and, to a lesser degree, rising gas and food prices—resulted in a less favorable view of current economic conditions and short-term growth prospects. Spending intentions for homes, autos, and major appliances all cooled somewhat; however, the percentage of consumers intending to take a vacation in the next six months continued to climb. While the resurgence of COVID-19 and inflation concerns have dampened confidence, it is too soon to conclude this decline will result in consumers significantly curtailing their spending in the months ahead.” (The Conference Board, August 31, 2021.)
A South Carolina man won a $200,000 prize from a lottery drawing thanks to a special set of numbers that he copied down from a TV show. The South Carolina Education Lottery said the winner, who chose to remain anonymous, purchased a Palmetto Cash 5 ticket from the Piggly Wiggly store in Chesterfield and selected the numbers 1-10-16-17-18. The man told officials he got the numbers from an unusual source: "I saw them on television." The winner did not reveal what TV show gave him the lucky numbers, but they earned him a $200,000 top prize. The Piggly Wiggly store that sold the winning ticket was awarded a $2,000 commission.” (United Press International, August 31, 2021.”
As the summer idyll fades into our picture book of memories and the coming harvest of autumn begins to occupy our thoughts, now is the time to reflect on your preparations for year-end implications and set your priorities for how this tax year will place you in a position for financial success now and at the beginning of 2022. Everyone at Carlton Wealth looks forward to celebrating the joys of the new season with you.
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.
The start of the fourth quarter was generous to the equity markets as almost every key indices reached new year-long heights.
September was a difficult month for the major market indices as investors remained concerned about the possibility of inflation and the nation’s...