Weekly Market Update with Brian Ransom 15 October 2021
Welcome to the weekly market update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth and here’s what happened in the market this week.
Thus far, the decline that began in September has continued and we are in a downward trading pattern. Right now, the market is off 3.3% from all-time highs. But that has diverged somewhat from the equal weighted index, shown in purple here, which has broken out of that downward trading pattern. This indicates that smaller stocks in the S&P 500 are currently outperforming the largest stocks.
In the news this week, the third quarter earnings cycle began with earnings reports from JP Morgan, Blackrock, and Delta airlines. Results were largely overshadowed by the Consumer price index rising another 5.4% from 2020 levels. Supply chains remain tight which continues to drive prices higher. Stocks waivered with the results from the inflation data with about half of the stocks in the S&P advancing to higher prices.
Drilling in deeper into those CPI results, we can see that these increases in prices do not appear to be abating. This is now the fourth month in a row of annualized increases in prices of 5% or more. Drilling in deeper still, we can see the primary drivers of the increase are gasoline (shown in purple), energy (shown in blue) and natural gas (shown in orange). Each of these items have outpaced the index average. We have also seen medical commodities (shown in green) and apparel (shown in grey) drop in prices. Food (shown in blue) has increased but is still below the index average. Based on this, it’s pretty clear that short term, we are seeing rising prices for consumers.
Despite all the hype, however, there is still no evidence of long-term inflation getting out of hand like we saw in the 70’s and 80’s. Currently, the 5-year expected forward inflation rate is right at 2.34% which is roughly in line with the historical average going back to 2001. Either runaway inflation is overhyped or the bond market is completely missing the train here.
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1.FactSet Research Systems. (n.d.). S&P 500 & S&P 500 Equal Weight Index (Interactive Charts). Retrieved October 13, 2021, from FactSet Database.
2.Bureau of Labor Statistics. “12-month percentage change, Consumer Price Index, selected categories.” Updated October 13, 2021. Retrieved from https://www.bls.gov/news.release/cpi.toc.htm
3.Federal Reserve Bank of St. Louis, 5-Year, 5-Year Forward Inflation Expectation Rate [T5YIFR], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/T5YIFR, October 12, 2021.
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