Chief Economist Scott Brown discusses the latest market data.
As expected, the Federal Open Market Committee (FOMC) announced it would begin reducing (“tapering”) the monthly pace of asset purchases – currently $120 billion – by $15 billion per month but could go faster or slower depending on economic conditions.
“Inflation remains elevated,” the FOMC noted, but largely due to factors that are “expected to be transitory.” Supply/demand imbalances have boosted inflation in some sectors, but easing supply constraints are expected to support growth and reduce inflation.
In his press conference, Fed Chair Powell repeated that the criterion for an increase in short-term interest rates is more stringent than for tapering, but admitted that reaching full employment by the middle of next year was “certainly within the realm of possibility.”
The October Employment Report was stronger than expected. Nonfarm payrolls rose by 531,000 (median forecast of economists: +450,000), with a net +235,000 revision to August and September. The unemployment rate fell to 4.6% from 4.8%, but labor force participation held steady at 61.6%, the same as a year ago. The ISM surveys reflected strength in October, and the Services Index hit a record high. Both reports indicated elevated input price pressures and supply managers reported ongoing supply chain difficulties. Unit motor vehicle sales picked up to a 13.0 million seasonally adjusted annual rate (vs. 12.2 million in September), but much of the increase appeared to come from lower inventories.
Next week: The Consumer Price Index will be boosted by higher gasoline prices in October. Components of core inflation should be mixed but mostly higher. (Used vehicle prices were reported to have risen sharply.) The bond market will be closed for the Veterans Day holiday.
Treasury Yield Curve – 11/05/2021
As of close of business 11/04/2021
S&P Sector Performance (YTD) – 11/05/2021
Economic Calendar
| November 9 |
— |
Producer Price Index (October) |
| November 10 |
— |
Jobless Claims (week ending November 6) |
| |
— |
Consumer Price Index (October) |
| November 11 |
— |
Veterans Day (bond market closed) |
| |
— |
UM Consumer Sentiment (mid-November) |
| |
— |
JOLTS Data (September) |
| November 16 |
— |
Retail Sales (October) |
| |
— |
Industrial Production (October) |
| November 25 |
— |
Thanksgiving (markets closed) |
| December 3 |
— |
Employment Report (November) |
| December 15 |
— |
FOMC Policy Decision |
All expressions of opinion reflect the judgment of the author and are subject to change. There is no assurance any of the forecasts mentioned will occur or that any trends mentioned will continue in the future. Investing involves risks including the possible loss of capital. Past performance is not a guarantee of future results. International investing is subject to additional risks such as currency fluctuations, different financial accounting standards by country, and possible political and economic risks, which may be greater in emerging markets. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, and state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Municipal bonds may be subject to capital gains taxes if sold or redeemed at a profit. Taxable Equivalent Yield (TEY) assumes a 35% tax rate.
The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks. An investment cannot be made directly in these indexes. The performance noted does not include fees or charges, which would reduce an investor's returns. U.S. government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.
Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments. Gross Domestic Product (GDP) is the annual total market value of all final goods and services produced domestically by the U.S. The federal funds rate (“Fed Funds”) is the interest rate at which banks and credit unions lend reserve balances to other depository institutions overnight. The prime rate is the underlying index for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. Material prepared by Raymond James for use by financial advisors. Data source: Bloomberg, as of close of business November 4, 2021.
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