Markets Begin Q4 on an Up Note, but Volatility Persists…..
U.S. equities finished higher to begin Q4 on a high note, but the volatility that attributed to September’s wild ride and saw the S&P 500 snap a seven-month winning streak, carried over as October is another historically choppy period for stocks. The markets got an initial boost from upbeat trial results of a potentially first oral treatment of COVID-19 from Dow member Merck & Co and partner Ridgeback Biotherapeutics. However, despite the news, the Health Care sector underperformed, while the Information Technology sector finished to the upside after initially being the laggard. A host of economic data was processed, with key September manufacturing reports showing stronger-than-expected growth, personal income and spending rising in August, and September consumer sentiment unexpectedly being revised higher. In other equity news, Exxon Mobil said the surge in natural gas prices is expected to boost Q3 earnings. Lawmakers on Capitol Hill continued to struggle to find common ground on the debt ceiling and infrastructure spending, though they did agree yesterday to avoid a government shutdown, at least for now. Treasuries gained ground to apply some pressure on yields, and the U.S. dollar continued to pare a recent rally, while gold was higher and crude oil prices saw slight gains. Europe finished mostly lower amid the flood of data, while markets in Asia fell in light volume with bourses in China and Hong Kong closed for holidays.
The Dow Jones Industrial Average jumped 483 points (1.4%) to 34,326, the S&P 500 Index increased 50 points (1.2%) to 4,357, and the Nasdaq Composite gained 118 points (0.8%) to 14,567. In moderately-heavy volume, 912 million shares were traded on the NYSE and 4.6 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.85 to $75.88 per barrel. Elsewhere, the gold spot price rose $2.10 to $1,759.10 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—moved 0.2% lower to 94.05. Markets were lower for the week, as the DJIA lost 1.4%, the S&P 500 decreased 2.2%, and the Nasdaq Composite tumbled 3.2%.
The September Institute for Supply Management (ISM) Manufacturing Index showed manufacturing growth (a reading above 50) unexpectedly accelerated. The index rose to 61.1 from August’s unrevised 59.9 level, and versus the Bloomberg consensus estimate of a dip to 59.5. The stronger-than-expected report came as growth in new orders was unchanged but held onto a robust 66.7 figure, while production growth dipped to 59.4 from 60.0, and expansion in new export orders declined but remained in expansion territory. Supplier deliveries jumped 3.9 points to 73.4, inventories rose 1.4 points to 55.6, and employment increased slightly but moved back in expansion territory. Inflation pressures persisted, rising 1.8 points to 81.2, but remaining well off the 92.1 mark in June that was the highest reading since July 1979.
The ISM said, “Manufacturing performed well for the 16th straight month, with demand, consumption and inputs registering month-over-month growth, in spite of continuing unprecedented obstacles and ever-increasing demand. Panelists’ companies and their supply chains continue to struggle to meet demand due to difficulties in hiring and a clear cycle of labor turnover, as workers opt for more attractive job opportunities. Disruptions from COVID-19, primarily in Southeast Asia, continue to have an impact on many industry sectors. Congestion at ports in China and the U.S. continues to be a headwind, as transportation networks remain stressed. Demand remains at strong levels, despite increasing prices.”
The final September Markit U.S. Manufacturing PMI Index was unexpectedly revised higher to 60.7 from the preliminary 60.5 level, where it was forecasted to remain, but below August’s reading of 61.1. A reading above 50 denotes expansion. Markit’s report differs from the ISM’s release as it polls a larger swath of companies varying in size and it weights its components differently.
Personal income rose 0.2% month-over-month (m/m) in August, matching the Bloomberg forecast and following July’s unrevised 1.1% gain. Personal spending grew 0.8%, above estimates of a 0.7% gain and compared to the prior month’s downwardly-adjusted 0.1% dip. The August savings rate as a percentage of disposable income was 9.4%.
The PCE Price Index increased 0.4% m/m, above expectations of a 0.3% gain, and in line with July’s unadjusted increase. Compared to last year, the deflator was 4.3% higher, north of estimates to match July’s unadjusted 4.2% gain. Excluding food and energy, the CorePCE Price Index rose 0.3% m/m, above expectations of a 0.2% increase, and matching July’s unadjusted rise. The index was 3.6% higher y/y, topping estimates of a 3.5% gain, and in line with July’s unadjusted rise.
The September final University of Michigan Consumer Sentiment Index was surprisingly revised higher to 72.8, compared to expectations for it to be unadjusted at the preliminary reading of 71.0. The upward revision came as positive adjustments were made to both the current conditions and expectations components of the survey. The overall index was higher versus August’s 70.3 level, as sentiment regarding both expectations and current conditions improved sequentially m/m. The 1-year inflation forecast remained at August’s 4.6% rate, but the 5-10 year inflation forecast ticked higher to 3.0% from the 2.9% level in the prior month.
Construction spending came in flat m/m in August, versus projections to match July’s unrevised 0.3% gain. Residential spending increased 0.4% m/m, but was countered by a 0.4% decline in non-residential spending.
Treasuries gained ground with yields volatile following a recent jump that has come from the Fed’s monetary policy decision last week which delivered notable changes in the Central Bank’s economic/inflation projections and rate hike expectations, while hinting that formal details of balance sheet tapering may come in November.
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