SMALL-CAPS COME ALIVE IN RECORD-SETTING WEEK

Each Of The Major Indices Set Intraday And Closing Record Highs This Week, And None Rose More Than The Small-Cap Russell 2000 With Its 6.1% Gain. The Nasdaq Composite Rose 3.1%, The S&P 500 Rose 2.0%, And The Dow Jones Industrial Average Rose 1.4%.

The animal spirts were in full force, supported not only by a sentimental fear of missing out on further gains but also fundamental factors:

• Fed Chair Powell made it clear the central bank is in no hurry to raise rates after the FOMC announced plans to taper asset purchases by $15 billion starting this month.

• The October employment report was stronger than expected, featuring 531,000 additions to nonfarm payrolls (Briefing.com consensus 400,000) and a 4.6% unemployment rate (Briefing.com consensus 4.7%).

• Interest rates dropped noticeably amid tempered rate-hike/inflation expectations. Fed Chair Powell said inflation should be less of an issue by the second or third quarter of 2022.

• Pfizer (PFE) said its COVID-19 oral antiviral reduced the risk of hospitalization or death by 89% in interim data.

• Pleasing earnings news from a host of companies, including Qualcomm (QCOM), which catalyzed a 12% gain in NVIDIA (NVDA) in one day.

Nine of the 11 S&P 500 sectors ended the week with gains. The consumer discretionary (+5.0%) rose 5% to a first-place finish, followed by 3% gains in information technology (+3.3%) and materials (+3.2%). The health care (-0.7%) and financials (-0.6%) sectors were the two sectors that closed lower. 

Notably, Avis Budget (CAR) was up as much as 218% in 90 minutes in an epic short squeeze after the company beat earnings estimates. The stock eventually cut those gains in half, but the crazy move exemplified the intense spirit of this bull market. 

Recapping the moves in the Treasury market, the 2-yr yield dropped ten basis points to 0.39%, and the 10-yr yield dropped 11 basis points to 1.45%. 

WTI crude futures briefly retreated below $80.00 per barrel after OPEC+ agreed to maintain its current production schedule for December. Oil prices bounced back on Friday but still ended the week lower by 2.7% to $81.25/bbl. 

MARKET CLOSES OUT THE MONTH AT RECORD HIGHS

Each Of The Large-Cap Indices Set Intraday And Closing Record Highs This Week Amid Continued Strength In The Mega-Cap Stocks. The Nasdaq Composite Rose 2.7%, Almost Matching The 2.9% Gain In The Vanguard Mega Cap Growth ETF (MGK). The S&P 500 Rose 1.3%, While The Dow Jones Industrial Average (+0.4%) And Russell 2000 (+0.3%) Rose Modestly.

Seven of the 11 S&P 500 sectors closed higher, led by communication services (+2.0%) and information technology (+2.0%) with 2% gains. The financials (-0.9%), energy (-0.8%), industrials (-0.3%), and utilities (-0.5%) sectors closed lower.

It was a big week for earnings, which included approximately one-third of the S&P 500 components and reports from Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), Alphabet (GOOG), and Facebook (FB).

Most companies exceeded EPS estimates, but commentary was littered with supply chain issues and higher costs. One key takeaway was that companies experienced robust demand, which provided them the opportunity to raise prices to offset inflationary pressures. Unfortunately, these supply chain issues are expected to persist in the fourth quarter.

These supply chain woes likely contributed to the underperformance of value stocks, evident by the 0.5% decline in the Russell 1000 Value Index this week. In addition, the Advance Q3 GDP report was weaker than expected, and Democrats continued to drag their feet on infrastructure after President Biden announced a framework for the $1.75 trillion budget reconciliation bill.

Back to the mega-caps, Microsoft and Alphabet were the earnings winners this week with 7% weekly gains. Tesla (TSLA), though, was the biggest winner with a 22.5% gain that was jumpstarted by an agreement to sell 100,000 vehicles to Hertz Global (HTZZ). TSLA reached a $1 trillion market capitalization.

Facebook made news not because of its earnings report but because it confirmed a name change to "Meta" and a ticker change to "MVRS," starting Dec. 1.

The Treasury market, meanwhile, was a bit of a mess throughout the week. The 2-yr yield finished two basis points higher at 0.49%, while the 10-yr yield dropped ten basis points to 1.56%.

The increase in the 2-yr yield reflected continued expectations for the Fed to hike rates sooner than forecasted due to inflation. In turn, fears that the economy could be further stymied by a policy mistake may have fueled the price action in longer-dated yields.

MARKET ABSORBS INFLATION PRESSURES & RALLIES AMID POSITIVE EARNINGS NEWS, ECON

The Stock Market Had A Great Second Half Of The Week, Bolstered By Better-Than-Expected Earnings Reports, Relatively Encouraging Economic Data, And Improving Technical Factors. The Nasdaq Composite (+2.2%) Led The Way With A 2.2% Gain, Followed By The S&P 500 (+1.8%), Dow Jones Industrial Average (+1.6%), And Russell 2000 (+1.5%) With Decent Gains. 

Ten of the 11 S&P 500 sectors finished the week in positive territory. The consumer discretionary (+3.6%), materials (+3.6%), and real estate (+3.5%) sectors each gained around 3.5%, while the communication services sector (-0.4%) was the lone holdout.

The start of the Q3 earnings-reporting season went well with most companies (predominately banks) exceeding expectations. In addition, there was a surprising 0.7% m/m increase in total retail sales for September (Briefing.com consensus -0.3%), and weekly initial claims (293,000) fell to their lowest level since the start of the pandemic.

The good news helped the market overlook persistent inflation pressures indicated in the Consumer Price Index and Producer Price Index reports for September, higher oil prices ($82.26/bbl, +2.86, +3.6%), and ongoing supply chain challenges highlighted by companies and reports.

More accurately, though, the stock market took its inflation cue from the Treasury market, which signaled a renewed tolerance for the peak-inflation narrative. This view stemmed from core CPI and core PPI coming in softer than expected on a month-over-month basis. The 10-yr yield decreased three basis points to 1.58%.

Technical factors helped, too. The S&P 500 closed above its 50-day moving average on Thursday, and the positive-minded price action carried over into Friday. This follow-through from buyers was viewed as a good indicator among traders.

Separately, the FOMC Minutes from the September meeting showed that asset purchases would be reduced on a monthly basis by $15 billion ($10 bln in Treasury securities and $5 bln in agency MBS) if begun later this year and lasting until the middle of 2022.

Value Stocks Lead Market Rebound Amid Some Relief on the Debt Ceiling

The S&P 500 Advanced 0.8% This Week, Overcoming A Tough Monday Session, As Investors Bought The Dip And Breathed A Sigh Of Relief That A Debt-Ceiling Agreement Was Reached In The Senate.

The Dow Jones Industrial Average outperformed with a 1.2% gain, while the Nasdaq Composite increased just 0.1% and the Russell 2000 decreased 0.4%.

Eight of the 11 S&P 500 sectors closed higher, led by energy (+5.0%) with a 5% gain and financials (+2.3%) with a 2% gain. These groups helped drive the outperformance of the Russell 1000 Value Index (+1.2%) versus the Russell 1000 Growth Index (+0.3%). Conversely, the real estate (-0.8%), health care (-0.3%), and communication services (-0.1%) sectors closed lower.

Among the many issues overhanging the market (infrastructure, supply chain disruptions, raw material shortages, and inflation, to name a few), lawmakers moved to make the debt ceiling an issue for another day. The Senate passed a bill Thursday to extend the debt ceiling by $480 billion until Dec. 3.

The news was the basis for a large chunk of the 3.3% gain in the S&P 500 from Wednesday's intraday low to Thursday's intraday high. The benchmark index, however, saw some resistance near the underside of its 50-day moving average (4438), and risk sentiment was challenged on Friday following the release of a mixed September employment report.

September nonfarm payrolls increased by only 194,000 (Briefing.com consensus 450,000), which led some to reasonably argue that the Fed could delay its taper announcement past November. Beneath the headline number, however, were figures that supported the case for tapering sooner rather than later.

Specifically, private sector payrolls increased by 317,000 (Briefing.com consensus 385,000); the unemployment rate was 4.8% (Briefing.com consensus 5.1%), versus 5.2% in August; and average hourly earnings increased by 0.6% (Briefing.com consensus 0.4%).

The latter reflected inflation pressures stemming from supply-related constraints. Rising oil prices and interest rates further reflected inflation concerns/expectations. WTI crude briefly topped $80 per barrel for the first time since 2014 while the 10-yr yield climbed 15 basis points to 1.60%.

SELLERS TAKE CONTROL IN SHORTENED WEEK

The Stock Market Had A Tough Four-Day Week, With The S&P 500 Losing 1.7% And Closing Lower In Each Session As Buyers Appeared Exhausted. The Dow Jones Industrial Average (-2.2%) And The Russell 2000 (-2.8%) Both Declined More Than 2.0% While The Nasdaq Composite Declined 1.6%.

All 11 S&P 500 sectors finished the week in negative territory, led lower by the real estate (-3.9%), health care (-2.7%), and industrials (-2.5%) sectors with losses over 2.0%. The top-weighted information technology sector declined 1.8%, while the consumer discretionary sector (-0.3%) outperformed on a relative basis.

No one event dragged the market lower. Instead, it was a confluence of negative-sounding news that pressured risk sentiment amid speculation for a larger pullback.

On the macro-related front:

• Goldman Sachs reduced its Q4 and 2021 GDP forecasts

• The enhanced unemployment benefits expired

• Axios reported that Senator Manchin (D-WV) would only support $1.5 trillion for any human infrastructure plan

• The ECB said it could start reducing its emergency asset purchases by a moderate pace

• Treasury Secretary Yellen warned about the economic consequences if lawmakers don't resolve the debt-ceiling issue

• Both the $24 bln 30-year bond and the $38 bln 10-yr note auctions saw decent demand, reflecting lingering growth concerns

• Cryptocurrencies sold off, remind some investors about reducing their risk exposure

On the corporate front:

• A court ruled that Apple (AAPL) must give developers the ability to create their own payment options

• Johnson & Johnson (JNJ), Merck (MRK), and Amgen (AMGN) were downgraded to Equal-Weight from Overweight at Morgan Stanley

• The airlines lowered their Q3 outlooks, as did Sherwin-Williams (SHW) because of raw material issues.

The 10-yr yield increased two basis points to 1.34% amid some hot PPI data for August and continued improvement in the weekly initial and continuing claims report. 

Nasdaq Stands Out During Quiet Week

The Stock Market Started September On A Quiet Note After An Equally Quiet Finish To August. The S&P 500 Added 0.6% For The Week While The Nasdaq Outperformed, Gaining 1.6%. The Dow Lagged Throughout The Week, Shedding 0.2%.

The S&P 500 and Nasdaq recorded the bulk of this week's gains on Monday, inching to fresh record highs as the week went on.

The start of the new month brought the release of manufacturing and non-manufacturing surveys from major economies. Most of these surveys showed a deceleration in activity while China's Caixin manufacturing and non-manufacturing fell into contraction, prompting speculation about more easing. Meanwhile, manufacturing and non-manufacturing surveys from the U.S. remained in expansionary territory.

Friday's release of the Employment Situation report for August muddled the economic picture for the U.S., as nonfarm payrolls increased by just 235,000 while the Briefing.com consensus expected growth of 750,000. The headline miss was coupled with a 0.6% increase in average hourly earnings, which was well ahead of the 0.3% increase expected by the Briefing.com consensus.

Seven sectors ended the week in positive territory with gains ranging from 0.9% (technology) to 4.0% (real estate). On the downside, financials (-2.5%) and energy (-1.4%) finished at the bottom of the leaderboard while materials (-0.9%) and industrials (-0.4%) recorded slimmer losses.

Bull Market Bounces Back to Record Highs, Fed Chair Powell Pleases Market

The S&P 500 (+1.5%) And Nasdaq Composite (+2.8%) Set Record Highs Every Day This Week, Except For Thursday, Accentuating The Bull Market's Persistent Ability To Overlook Concerns And Attract Buying Interest. Both Ended The Week Higher By 1.5% And 2.8%, Respectively, Following Fed Chair Powell's Jackson Hole Speech On Friday.

The Dow Jones Industrial Average underperformed on a relative basis with a 1.0% gain, while the Russell 2000 raced ahead with a 5.1% gain amid a strong bounce in energy stocks.

From a sector perspective, the S&P 500 energy sector rebounded 7.3% (cutting its monthly decline to 1.0%) while five other sectors rose more than 2.0%. The defensive-oriented utilities (-2.1%), consumer staples (-1.4%), health care (-1.2%), and real estate (-0.3%) sectors closed lower, loosely reflecting a greater tolerance for riskier stocks. 

Prior to Fed Chair Powell's speech, the market was in-tune with a buy-the-dip mindset amid various developments:

• An observation that last week ended on a high note.

• Data suggesting the Delta variant could be peaking in the U.S.

• The FDA granting full approval for the Pfizer (PFE)-BioNTech (BNTX) vaccine for people 16 years and older.

• The House advancing the $3.5 trillion budget resolution and the $1 trillion bipartisan infrastructure bill through procedural hurdles.

• Earnings reports for the most part continuing to beat expectations.

• Taiwan Semi (TSM) planning to increase prices of more advanced chips by 10-20% next year.

• Preliminary manufacturing and services PMIs for August out of the eurozone and U.S. remaining in expansion mode.

• Reports indicating White House advisors and Treasury Secretary Yellen are on board with nominating Fed Chair Powell for a second term.

Interestingly, despite all the good news, the S&P 500 was only up 0.6% entering Friday. Part of that was because of the geopolitical uncertainty in Afghanistan, hawkish-sounding Fed commentary about wanting to taper sooner rather than later, and some hesitancy in front of Fed Chair Powell's speech.

The hawkish commentary continued Friday morning, but Fed Chair Powell struck a diplomatic tone that appeased the market. Briefly, Mr. Powell said "substantial further progress" has been met on inflation and that "clear progress" has been made on employment, implying it's not yet time for the Fed to start tapering asset purchases because the labor market still has room for improvement.

While the Fed chair acknowledged that tapering should probably start before the year ends, he reminded market participants that even when the central bank ends purchases, financial conditions will still be accommodative and that the criteria for interest-rate hikes will be based on a more careful assessment of the economy.

Treasury yields lost some rebound momentum following the comments. The 10-yr yield settled five basis points higher at 1.31% after hitting 1.37% earlier in the week. The U.S. Dollar Index fell 0.9% to 92.68.

Market Tags Record Highs Then Retreats Amid a Host of Concerns

The S&P 500 (-0.6%) And Dow Jones Industrial Average (-1.1%) Started The Week Setting Record Highs, But The Market Got Caught Up In A Myriad Of Concerns That Left The Major Indices Lower For The Week. The S&P 500 Lost 0.6%, The Dow Lost 1.1%, And The Nasdaq Composite Lost 0.7%. The Russell 2000 Was The Real Loser With A 2.5% Decline.

Briefly, there were concerns surrounding 1) supply chain disruptions worsened by the Delta variant, 2) vaccine efficacy, 3) the Fed's taper timeline as the July FOMC minutes rehashed commentary about tapering sooner rather than later, 4) China's regulatory crackdown, 5) Afghanistan after it was overtaken by the Taliban, and 6) the potential for a larger pullback.

Essentially, the concerns were growth-related at a time when the market was trading at record highs and the economic data wasn't all that great. Retail sales for July, total housing starts for July, and the Empire State Manufacturing Survey for August were each weaker than expected. Weekly initial and continuing claims both improved.

At one point during the week, the S&P 500 was down 2.5% from its record high on Monday. The mega-caps were among the first to rebound, though, then a broad-based advance ensued on Friday as investors bought the dip amid some fears of missing out on a rebound rally.

The damage was already done for the cyclical stocks, though. The energy sector (-7.3%) ended the week down 7% as oil prices ($62.25, -6.12, -9.0%) tumbled 9%. The materials (-3.1%), consumer discretionary (-2.2%), financials (-2.3%), and industrials (-2.3%) sectors declined between 2-3%.

Conversely, the health care (+1.8%), utilities (+1.8%), real estate (+0.6%), consumer staples (+0.4%), and information technology (+0.4%) sectors ended the week in the green. Microsoft (MSFT) broke out to record highs with a 3.9% gain.

Longer-dated Treasuries rose in sympathy with growth concerns, leaving the 10-yr yield down four basis points to 1.26%. The CBOE Volatility Index, meanwhile, spiked 20% to 18.56 amid increased hedging interest.

DOW AND S&P 500 MAINTAIN UPWARD TRACK

The Past Week Saw More New Records In The Stock Market With The Dow And S&P 500 Inching To Fresh Highs. The Two Indices Gained A Respective 0.9% And 0.7% For The Week While The Nasdaq Underperformed, Shedding 0.1%. Small Caps Also Struggled To Keep Pace, As The Russell 2000 Gave Up 1.1%.

There was some focus on news from Washington during the first half of the week, as the Senate approved a $1.2 trln infrastructure bill and authorized $3.5 trln in additional spending. The bills will now be considered by the House, but reports from Friday pointed to some fresh uncertainty as nine House Democrats said they won't vote for the $3.5 trillion budget resolution until the $1.2 trillion bipartisan infrastructure bill is signed into law.

The renewed misgivings did not stop the major averages from ending the week on a positive note. Ten sectors recorded gains for the week with materials (+2.7%), consumer staples (+2.1%), and financials (+1.9%) leading the way while energy (-0.8%) finished in the red.

Consumer staples received significant support from Tyson Foods (TSN), as the stock jumped nearly 14.0% for the week after reporting better than expected results on Monday morning. Sysco (SYY) gained nearly 7.5% after it too beat quarterly expectations on Tuesday morning.

In other earnings of note, Disney (DIS) touched a three-month high after beating earnings and revenue expectations on Thursday evening.

On the downside, chipmakers underperformed through Thursday with the PHLX Semiconductor Index narrowing its loss for the week to 2.3% during a Friday rebound. The underperformance followed a report from DRAMeXchange about market expectations for memory prices to drop up to 5.0% in Q4.

The bulk of last week's economic reports were close to estimates while the preliminary reading of the University of Michigan Sentiment Survey for August produced a big downside surprise. The index fell to 70.2 from 81.2, reaching its lowest level since late 2011 due to deteriorating sentiment about all aspects of the economy.

Treasuries faced some selling pressure during the first half of the week but recovered the bulk of their losses during a Friday rebound that left the 10-yr yield (1.30%) up just one basis point for the week.

Economic Data Keeps Bull Market Going

The Stock Market Muscled Out Another Trio Of Record Closing Highs For The S&P 500 (+0.9%), Nasdaq Composite (+1.1%), And Dow Jones Industrial Average (+0.8%) This Week, As Risk Sentiment Was Supported By An Encouraging Round Of Economic Data. The Russell 2000 Rose 1.0%, Keeping Pace With Its Large-Cap Peers.

Recapping the key economic data:

• The Employment Situation report for July was better than expected, featuring 943,000 additions to nonfarm payrolls (Briefing.com consensus 925,000)

• July manufacturing activity in the U.S., Europe, and Asia remained in expansionary territory

• The July ISM Non-Manufacturing Index increased to a record high of 64.1% (Briefing.com consensus 60.5%)

• The June trade balance report saw imports outstrip exports as the U.S. tried to meet the pent-up demand in the economy

• Weekly continuing claims dipped below 3.0 million for the first time since the pandemic began

The takeaway was that the labor market, the manufacturing sector, the services sector, and trade activity continued to paint a good recovery in the economy. Note, the employment report supported the case for the Fed to consider tapering asset purchases sooner rather than later.

Growth stocks and value stocks rose together, evident by the 0.9% gains in both the Russell 1000 Value Index and Russell 1000 Growth Index. Ten of the 11 S&P 500 sectors contributed to the advance, paced by the financials (+3.6%) and utilities (+2.3%) sectors with strong gains. No other sector gained more than 1.0%.

The consumer staples sector (-0.6%) was the only sector that closed lower. 

Other supportive factors included good earnings news from a plethora of companies, M&A activity, and a finalized text of the $1 trillion bipartisan infrastructure bill that the Senate plans to vote on this weekend.

The 10-yr yield traded as low as 1.13% this week amid peak growth/inflation expectations, and concerns about the Delta variant, but ended the week at 1.29% or five basis points above last Friday's settlement. This rebound aligned with a pro-growth mindset.