Monday Morning Market Insights: Last Week in Review with Rusty Vanneman, Vol. 39

Last week, the US market declined over 2% with the S&P 500 ending a seven-month winning streak and September marking its worst month of the year, driven by factors like Evergrande's crisis, US debt ceiling concerns, tax hikes, Fed taper timing, and rising yields, while Small Cap Value stocks outperformed, Treasury yields fluctuated around 1.47%, mortgage rates exceeded 3%, rental prices surged 11% since 2020, inflation hit a 30-year high with core PCE up 3.6% year-over-year, and despite inflation and rate worries, the stock market outlook remains mostly positive heading into the final quarter.

Happy Monday! Last week the overall US market was down just over 2%, but some parts of the market finished higher, including Value stocks, particularly Small Cap Value stocks, which were up nearly 2% last week. While the current impressive bull market may just need a breather, the reasons for recent market weakness include Evergrande (Chinese real estate), US debt ceiling, US tax hikes, the timing of Fed taper, rising yields, and more.

Last week, the S&P 500 broke a seven-month winning streak and finished the month down by nearly 5%. The Dow and NASDAQ also had their worst months of the year so far. Ten of the 11 S&P 500 sectors suffered losses in September, with Energy as the lone gainer, up nearly 10%. Value beat Growth and Small Caps beat Large Caps. The average stock in the overall US market was down less than 3%.
Ten Year Treasury Yields initially moved higher, then closed unchanged at 1.47%. At one point, the 10-year was at 1.57%, its highest level since June 17, 2021. Yields bottomed on August 4 at 1.12%. As of this writing, yields are now at 1.49%.
US mortgage rates recently topped 3%. Rental prices in the US are skyrocketing, with the median national rent for a one-bedroom climbing 11% since March 2020. This is notable as rents eventually flow into inflation data.
Inflation data released last week showed a fresh 30-year high in August due to supply chain disruptions and high demand. The core personal consumption expenditures price index increased 0.3% for the month and was up 3.6% from a year ago, the highest since May 1991. The Fed’s expectations of US inflation have been rising, with core inflation projected at 3.7% in 2021, up from 3% in June. Powell noted that inflation could stay higher for longer, especially if supply chain issues persist.
Despite concerns about higher inflation and interest rates, the outlook for the stock market looks mostly positive entering the last three months of the year. COVID data is improving, investor sentiment and expectations are low, setting the stage for positive surprises and above-average market gains. The fourth quarter tends to be the best quarter for the stock market. Since 1950, in years where the S&P’s return in the first nine months has been strong, the fourth quarter has also tended to be positive.
September is over, and seasonality trends suggest good odds for more gains. Over the last 20 years, October has been the third-best month for the Dow Jones Industrials in terms of average gain.
On the COVID front, data continues to improve, and positive trial results from Merck regarding its oral anti-viral COVID treatment were reported. The possibility of a pill to reduce adverse reactions to COVID would be a significant step toward normalcy.
Investor/advisor sentiment remains relatively cautious, which is typically a leading indicator for future above-average market returns. Recent surveys show more bearish than bullish sentiment. The “meme stock” fad may be fading, with Robinhood’s app downloads and daily active users dropping significantly in the third quarter.
Major economic news this week includes Tuesday's ISM Services report and Friday's Non-Farm Payrolls, alongside ongoing negotiations in Washington over reconciliation and the debt ceiling.
Interest in crypto assets trading is down, but prices are not. Bitcoin prices rose over 10% last week, reaching $48k. Ethereum is just under $3300.
The Old Farmer’s Almanac predicts a very cold winter, warning of a "Season of Shivers" with below-average temperatures across most of the US. Natural gas prices have surged, up nearly 10% last week and over 50% in just over a month at one point.
A recent article highlights the importance of face-to-face interactions in getting better deals, emphasizing the value of social interaction in both consumer and sales contexts.
People tend to like us more than we think, which can help ease social anxiety.
A notable statistic: 42% of participants in Transamerica's 2021 Retirement Survey identified "outliving my savings and investments" as their biggest retirement fear, more than health or dementia concerns. Lack of investment knowledge contributes to this fear.
Stocks are now at a 70-year high as a share of household financial wealth, making up about half of the $109.2 trillion in financial assets held by US households. This is due to increased savings, higher market valuations, and greater investment. This trend supports a narrative of cautious optimism for the rest of the year.
Multiple studies indicate that women are typically better investment managers and advisors. A recent MIT study found that older men are most likely to panic-sell stocks.
This week’s Orion’s The Weighing Machine podcast features an interview with Jeremy Siegel from WisdomTree, discussing his market outlook and the biggest risks to the economy and markets, including concerns about inflation.
Felipe Toews was recently interviewed on the Standard Deviations podcast, discussing market drawdowns and how advisors and investors should prepare for them.

For more resources, check out the Financial Advisor Success Hub. Thanks for reading and have a great week!