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Daily Market Report | October 1, 2021

US FINANCIAL MARKET

Stocks Slip to Start the Fourth Quarter – Wall Street Journal, 10/1/2021

  • U.S. stocks slipped Friday on the first day of a new month and a new quarter, as the market continued to struggle with the collection of issues that drove it down earlier in the week.
  • The Dow Jones Industrial Average—which snapped a five-quarter winning streak Thursday—was trading mostly flat.
  • The S&P 500 lost 0.2% after the broad stocks index closed out its biggest monthly loss since March last year.
  • The S&P had fallen 3.3% from Monday through Thursday, which would be its biggest decline since a 5.6% drop in late October 2020.
  • On the economic front, U.S. consumer spending rose 0.8% in August, the Commerce Department said.
  • The pickup signals the U.S. economic recovery is gaining steam heading into autumn.
  • Investors though are still contending with lingering worries over property giant China Evergrande Group and whether Congress can resolve its battles over U.S. spending plans.
  • House Democrats delayed plans to vote on a roughly $1 trillion infrastructure bill Thursday, as they came up short on reaching agreement around a separate social policy and climate package.
  • Surging prices for natural gas in Europe and Asia have raised concerns that the bout of inflation will last longer than many money managers had expected. Meantime, rising energy costs are expected to take a toll on growth in the world economy.
  • Energy prices cooled somewhat Friday. Futures for U.S. crude oil rose 0.1% to $75.11. Dutch natural-gas futures—which have surged almost fivefold in 2021 and are the benchmark in European gas markets—slipped 1.3% to 96.50 euros a megawatt-hour.
  • That is equivalent to about $112 a megawatt-hour.
  • The combination of central bank tightening and rising prices has sent bond yields higher this week.
  • On Friday, however, the yield on 10-year Treasury notes fell to 1.483% from 1.528% the day before. Yields move in the opposite direction to bond prices.
  • Overseas markets also retreated. The Stoxx Europe 600 dropped 0.4%, led lower by shares of banks, oil-and-gas companies and basic-resources producers.
  • In Asia, Japan’s Nikkei 225 lost 2.3% and South Korea’s Kospi fell 1.6%. Markets in Hong Kong and mainland China were closed for a holiday.

Merck Surges as Covid Pill Looks to Ease Hospital Strains – Bloomberg, 10/1/2021

  • Merck shares posted their biggest gain in 12 years after the company’s experimental pill slashed the risk of getting seriously ill or dying from Covid-19 in a study, findings that could eventually yield a simple way to treat many virus patients before they ever reach the hospital.
  • The drug, known as molnupiravir, reduced the risk of hospitalization or death by 50% in an interim analysis of a late-stage clinical trial, Merck and partner Ridgeback Biotherapeutics LP said in a statement on Friday.
  • The study results were so encouraging that Merck and closely held Ridgeback, in consultation with independent trial monitors and the U.S. Food and Drug Administration (FDA), elected to stop enrolling patients and begin the process of gaining regulatory clearance.
  • If the medication reaches the market, it would mark an important milestone in the pandemic.
  • While there are several drugs available to treat Covid-19, they can be either cumbersome to give to patients, or intended for use in only the most seriously ill.

DHL Raising Rates for U.S. Shippers by 5.9% – Wall Street Journal, 10/1/2021

  • DHL Express plans to raise rates for shipments for U.S. customers by an average of 5.9% starting Jan. 1, effectively matching a FedEx price increase for next year in an action that will raise costs for parcel shippers.
  • The company, which operates mostly international delivery services in the U.S. with limited domestic operations, increased rates by an average of 4.9% for 2021, and by 5.9% on average for 2020.
  • FedEx last month said it would raise its prices across its services next year by an average of 5.9%, the first time in eight years that the carrier or rival United Parcel Service Inc. went beyond a 4.9% annual increase.
  • UPS hasn’t announced its plans for rates in 2022.

GM auto sales fall for first time in four quarters – Reuters, 10/1/2021

  • General Motors on Friday reported a drop in U.S. auto sales for the first time in four quarters, hit by worsening semiconductor chip shortages and low inventories.
  • Chip shortages and supply chain disruptions have crimped production at automakers worldwide, forcing them to cut production and in some cases, to produce vehicles without chips and park them at their facilities.
  • “While supply has been constraining sales in recent months, underlying demand conditions remain strong,” said Elaine Buckberg, GM’s chief economist.
  • The No. 1 U.S. automaker said third-quarter sales fell to 446,997 vehicles, down 218,195 vehicles from a year earlier.

Lordstown Motors to Sell Former GM Factory in Ohio to Foxconn – Wall Street Journal, 10/1/2021

  • Electric-truck maker Lordstown Motors said Thursday it plans to sell its auto factory in Ohio to contract assembler Foxconn Technology Group, marking a major pivot for the cash-strapped startup as it works to bring its first pickup to market.
  • The two companies have entered into a nonbinding agreement for Lordstown to sell the facility and property, with the exception of certain assets, for a purchase price of $230 million, said Lordstown Motors Chief Executive Daniel Ninivaggi.
  • Lordstown Motors said Thursday that it has hired Jefferies LLC to advise the company on its financing options.
  • The EV maker said it has a cash balance of $210 million to $240 million as of Sept. 30.

Zoom’s Nearly $15 Billion Acquisition of Five9 Rejected by Shareholders – Wall Street Journal, 10/1/2021

  • Zoom Video Communications’ nearly $15 billion bid to acquire contact center company Five9 was shot down Thursday, dashing a major expansion plan for a video-conferencing powerhouse that has battled scrutiny over its perceived ties to China.
  • Five9 issued a news release saying that the deal failed to gain enough votes from its shareholders and that the merger plan had been “terminated by mutual agreement” between the two companies.
  • The rejected bid comes after proxy advisory firm Institutional Shareholder Services recommended Five9 shareholders vote against the acquisition, highlighting concerns about Zoom’s slowing growth as many people go back to more in-person meetings.
  • Glass, Lewis & Co., another proxy advisory firm, also advised Five9 shareholders to vote against the deal over similar concerns.

Lumber Prices Stage a Late Season Rally – Wall Street Journal, 10/1/2021

  • Futures are up almost 40% since late August, while pricing service Random Lengths said that its framing composite index, which tracks on-the-spot sales, has added 27%.
  • Analysts and industry executives don’t expect the gains to be the start of a wild ride like the one in spring that sent two-by-fours into orbit and then plunging back to earth.
  • Yet, the recent upturn shows how some of this year’s surge in the price of raw materials is lingering.
  • At $627.50 per thousand board feet, lumber futures are nearly as expensive as they ever were before the pandemic.
  • Analysts say prices need to climb higher to balance supply with demand.
  • That could be a shock to builders and other buyers expecting market-equilibrium lumber prices to be closer to the $357 that futures averaged between 2015 and 2019.

Amid supply chain snarls, retailers pitch early holiday shopping – Reuters, 10/1/2021

  • Target, Pottery Barn, Ulta Beauty, Gap and PacSun are among retailers promoting holiday decor and gifts as early as mid-September amid a global supply-chain logjam that threatens to limit availability of some merchandise later during the holiday season.
  • Americans are expected to spend about $1.3 trillion this holiday season, a 7% to 9% increase over last year, according to Deloitte.
  • Black Friday, the day after Thanksgiving, generally marks the start of the season in the United States, although major retailers typically start advertising holiday merchandise in early November.
  • Target is launching holiday promotions between Oct. 10 and 12, compared to Oct. 13 last year.
  • Pottery Barn’s Instagram posts as of Sept. 17 feature $250 Christmas wreaths.
  • It is pushing out holiday messages several days earlier than in 2020, and more than a month earlier than in 2019.
  • The company was unavailable to comment on the timing of its holiday advertising.
  • Gap is previewing its gift guides in October in hopes of prodding shoppers to begin making purchases before the holiday gift-giving scramble.
  • PacSun, which began planning for the holidays about four weeks earlier this year, will hold its pre-holiday digital campaign events in mid-October, similar to its timing in 2020, President Brieane Olson said.

Global equity funds see higher outflows on rate hike concerns -Lipper – Reuters, 10/1/2021

  • Outflows from global equity funds ramped up in the week to Sept. 29 on expectations that major central banks would lift interest rates soon amid concerns that inflation could persist for longer.
  • According to data from Lipper, investors sold a net $1.21 billion in global equity funds in the week, compared with net selling of $174 million in the previous week.
  • U.S. equity funds faced net selling of $6.24 billion, however Asian and European equities drew net purchases of $3.25 billion and $0.15 billion respectively.
  • Global bond funds saw net inflows for the 10th week in a row, although purchases fell 22% compared with the previous week.
  • Among commodity funds, energy funds saw their first net inflow in seven weeks at $25 million, while precious metals funds faced outflows of a net $931 million.

US ECONOMY & POLITICS

Inflation Gauge Hits Highest Since 1991 as Americans Spend More – Bloomberg, 10/1/2021

  • A closely watched measure of U.S. inflation rose the most on an annual basis in three decades, fueling concerns that price increases will last longer than expected and eventually hit consumer spending.
  • The personal consumption expenditures price gauge, which the Federal Reserve uses for its inflation target, rose 0.4% from a month earlier and 4.3% from a year earlier. The annual increase was the largest since 1991.
  • U.S. personal spending growth increased 0.8% from a month earlier, following a downwardly revised 0.1% decline in July, Commerce Department figures showed Friday. Spending in July was previously reported as a 0.3% gain.
  • The core PCE, which excludes food and energy, rose 0.3% for a second month.
  • The measure was up 3.6% from a year earlier, matching the highest since 1991.
  • Personal incomes, meanwhile, rose 0.2% after increasing 1.1% in the prior month due to a boost from an advance disbursement of the child tax credit. Wages and salaries climbed 0.5%.
  • Disposable personal income, or after-tax income adjusted for inflation, decreased 0.3% in August.
  • The saving rate — which has been had been elevated for months as a result of stimulus checks and enhanced unemployment benefits — dropped to 9.4% in August from 10.1%.

U.S. manufacturing expands further in September; shortages, prices rising-ISM – Reuters, 10/1/2021

  • U.S. manufacturing activity picked up further in September, but factories experienced longer delays getting raw materials delivered and paid higher prices for inputs.
  • The Institute for Supply Management (ISM) said on Friday its index of national factory activity increased to a reading of 61.1 last month from 59.9 in August.
  • Some of the surprise rise in the ISM index, however, was due to a jump in the survey’s measure of supplier deliveries to a reading of 73.4 last month from 69.5 in August.
  • A reading above 50 percent indicates slower deliveries, but a lengthening in suppliers’ delivery times is normally associated with a strong economy and increased customer demand, which would be a positive contribution to the ISM index.
  • That was underscored by a rebound in the survey’s measure of prices paid by manufacturers to a reading of 81.2 from an eight-month low of 79.4 in August.
  • The ISM survey’s forward-looking new orders sub-index held at a reading of 66.7 last month. Manufacturing is being underpinned by businesses desperate to rebuild stocks after inventories were depleted in the first half of the year.
  • A gauge of factory employment rebounded last month after falling in August to its lowest level since November. That suggests manufacturing payrolls growth likely picked up in September after slowing in the prior month.

U.S. construction spending flat in August – Reuters, 10/1/2021

  • U.S. construction spending was unexpectedly flat in August as an increase in public sector projects was offset by weakness in the private sector.
  • The Commerce Department said on Friday that the unchanged reading in construction spending followed a 0.3% gain in July. Construction spending increased 8.9% on a year-on-year basis in August.
  • Spending on private construction projects slipped 0.1% after rising 0.2% in July. Outlays on residential construction advanced 0.4%, likely lifted by remodeling projects, after rising by the same margin in July.
  • Single-family homebuilding spending fell 0.7% and outlays on multi-family housing projects dropped 0.8%.
  • Investment in private non-residential construction like gas and oil well drilling declined 1.0% in August.
  • Spending on public construction projects rose 0.5% in August, matching July’s gain. Outlays on state and local government construction projects increased 0.8%, but federal government spending dropped 4.6%.

Democrats Try Again to Pass Infrastructure Bill – Wall Street Journal, 10/1/2021

  • Democrats worked Friday to forge an agreement between their moderate and progressive wings on the parameters of a social policy and climate package, hoping to break an impasse over a separate $1 trillion infrastructure bill that progressives have threatened to block.
  • House Democratic leaders had planned on bringing the public works legislation up for a vote on Thursday, but a progressive rebellion against the central element of President Biden’s agenda forced lawmakers to push the vote to Friday.
  • Mr. Manchin said on Thursday that he could support spending $1.5 trillion on the social policy and climate bill, far below what progressive Democrats have pushed for. Some aides expect the new agreement to be worth roughly $2 trillion.
  • The failure to pass the infrastructure bill before midnight led to a lapse in authorization for the nation’s transportation programs, putting thousands of Transportation Department employees at risk of furlough.
  • Lawmakers have discussed a short-term patch to continue to reauthorize the transportation programs, while negotiations continue on the broader infrastructure bill.

Bill Averting Government Shutdown Signed Into Law – Wall Street Journal, 10/1/2021

  • President Biden signed a bill Thursday evening extending government funding through Dec. 3, averting a partial shutdown hours before current funding expires at midnight.
  • The bill passed both the House and Senate with bipartisan support earlier in the day. The legislation, which also includes $28.6 billion in emergency disaster aid and $6.3 billion to help resettle Afghan evacuees, passed 65-35 in the Senate, and 254 to 175 a few hours later in the House.
  • Democrats had initially sought to attach a suspension of the debt ceiling to the funding bill, but Republicans have refused to vote to increase the government’s borrowing limit, tanking that effort in the Senate.

U.S. Consumer Sentiment Rises Slightly, Remains Depressed – Bloomberg, 10/1/2021

  • U.S. consumer sentiment edged higher in late September, though remained near a pandemic low, as Americans grew slightly more optimistic about current economic conditions.
  • The University of Michigan’s final sentiment index rose to 72.8 from the preliminary reading of 71, data released Friday showed. The figure exceeded the median forecast in a Bloomberg survey of economists and compared with an August print of 70.3.
  • Consumers expect inflation to rise 4.6% over the next year, and 3% over the next five years, up from 2.9% in August.
  • The gauge of current conditions rose to 80.1 from 77.1 in the initial print, while a measure of future expectations improved to 68.1, according to the survey conducted Aug. 25 to Sept. 27.
  • Over the next five years, however, only 44% of respondents expect their financial situations to improve, the lowest level in seven years, according to the report.

EUROPE & WORLD

Euro-Area Inflation Surges to 13-Year High With More to Come – Bloomberg, 10/1/2021

  • Inflation in the euro area accelerated more than expected to the highest level in 13 years, adding fuel to a debate over how long the post-crisis spike will last.
  • Consumer prices rose 3.4% in September, compared with an estimate for a 3.3% gain, according to figures released by Eurostat on Friday. A measure stripping out volatile components such as food and energy climbed to 1.9%, a rate not seen since 2008.
  • Energy prices rose 1.3% in September and were up more than 17% on the previous year.
  • Non-energy industrial goods were 2.3% more expensive than in August.
  • German figures on Thursday showed inflation at 4.1%, the highest in nearly three decades.

Factories struggling as supply constraints hit, costs rise – Reuters, 10/1/2021

  • Global manufacturing activity took a big hit from supply chain bottlenecks and escalating costs, exacerbated by pandemic-induced factory shutdowns in Asia and signs of slowing Chinese growth, surveys showed on Friday.
  • Euro zone and British manufacturing growth remained strong but activity suffered from logistical issues, product shortages and a labor crunch that are likely to persist and keep inflationary pressures high.
  • IHS Markit’s final manufacturing Purchasing Managers’ Index (PMI) sank to 58.6 in September from August’s 61.4 and Britain’s PMI fell for a fourth month in a row, dropping to 57.1 from 60.3. Anything above 50 indicates growth.
  • Growth in French manufacturing weakened a tad more than initially forecast, its PMI showed, as problems over supplies of goods weighed on the industry.
  • Taiwan’s factory activity continued to expand but at its slowest pace in over a year while Vietnam’s index was unchanged.
  • Manufacturers in Japan, the world’s third-largest economy, faced pressure from pandemic restrictions and heightened supply chain disruptions as well as shortages of raw materials and delivery delays and its PMI marked its slowest pace of expansion since February.
  • South Korea’s, India’s and Indonesia’s PMIs rose.

Factmonster – TODAY in HISTORY

  • Henry Ford introduced the first mass-produced automobile on the market—the Model T car to the market. Each car cost $825. (1908)
  • General Francisco Franco became head of the insurgent Spanish government. (1936)
  • Walt Disney World opened in Orlando, Florida. (1971)

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