• Scott Poore, AIF, AWMA, APMA

Markets Stuck In Idle?

  • Economic data has been somewhat mixed this week, as investors await a key jobs report tomorrow.

  • Equity markets are trending flat this week, with bond yields following suit.

  • COVID positivity rates have plateaued, but it remains to be seen where cases may be headed from here.

Markets are relatively flat this week, but finished August up more than 2.0%. The market seems to be in a bit of a holding pattern until we get more information from the Fed about Tapering. Friday's Jobs Report will be closely watched to see if the Fed's new barometer (the Labor Market) will provide enough evidence to justify Tapering in the Fed's eye. There's also some evidence that the market likes the apparent stalemate in Congress. The Infrastructure Bill and Budget Reconciliation seem to be stuck in Congress and tied directly to the looming debt ceiling debate later this month. It kind of feels like we're "Stuck in Lodi" again. The writer of that song, John Fogerty, has been asked if he had ever been to Lodi, California. That's right - it's a real place; population 62,134. However, it would appear Fogerty had never been there prior to writing the song in 1969. The song, it seems, is more about a state of mind that it is a piece of real estate.


"Just about a year ago

I set out on the road

Seekin’ my fame and fortune

Lookin’ for a pot of gold

Things got bad, and things got worse

I guess you will know the tune

Oh, Lord, stuck in Lodi again."









Economic Data Mixed This Week. So far, the economic releases this week have taken on a slightly dour tone. Consumer Confidence, as measured by the Conference Board, declined significantly in August. It's not at a level of concern yet, but does indicate that the consumer is being cautious at this point. Pending Home Sales slipped in July, even though the Home Price Index continued to march higher. Construction Spending was higher and although the ISM Manufacturing Index showed growth in August, certain areas, as measured by the Dallas Fed this week and the Richmond & Kansas City Fed banks last week, reveal soft pockets in manufacturing. Yesterday, ADP Private payrolls disappointed for the 2nd consecutive month. However, the report did show some job growth in August, primarily in the Leisure & Hospitality Sector. The ADP Private payrolls stands in stark contrast to this morning's Jobs Report that showed little change in jobs for Leisure & Hospitality. Speaking of this morning's report, it fell woefully short of the 750,000 new jobs expected. Given the difference in the Government's report and the ADP report in several key sectors, I wouldn't be surprised if August's numbers get revised higher in next month's report. July's stellar jobs increase was revised higher to more than 1 million new jobs added last month. So far, the market is viewing this morning's report as evidence that Tapering by the Fed will be delayed. Yesterday, Weekly Jobless Claims came in lower than expected (340K vs. 345K expected). Unit Labor Costs increased 1.3% versus the 1.0% increase 3 months ago. This makes the case that inflation continues across multiple fronts and the need for Tapering to begin. Meanwhile, there is very little change in the National Financial Conditions Index, which we interpret to mean that the economy is still on solid footing.


Markets Largely Flat for the Week. The S&P 500 Index looks like it will finish flat for the week. Equity markets are a little stretched, but we believe that will change when Tapering is officially announced. Next week we'll get the August print on Producer Prices and then Consumer Prices the week after next. Inflation and the Labor Market are being watched in lieu of better guidance from the Fed. So, for the time being, it feels like markets are in wait-and-see mode here in the short-term. The S&P 500 has been on a methodical march higher, pulling back at least 7 times this year. The 50-day moving average (blue line in chart below) has been the key barometer this year as the index has pulled back to that line each time this year, then proceeded higher. The yield on the 10-year Treasury is higher by just 2 basis points this week. Commodities are slightly higher this week, driven mostly by oil as Ida has wreaked havoc on the gulf causing the shut down of rigs in that area.


Speaking of Stuck In Idle... It would appear that COVID cases are kind of stuck at current levels. When you look at the percentage of positive cases on a 7-day average, we have been between 11.5% and 10.3% for the better part of the last month. The positivity rate, as tracked by Johns Hopkins University & Medicine, looks like it could be making a move down, but it's not a given yet. Hospitalizations have begun to stabilize, but it remains to be seen if that becomes a longer-term trend. Pockets of higher cases have occurred in certain areas. However, U.S. map of reproduction rate looked a lot worse on August 1st than it does today. In the graphic below, there was an inordinate amount of counties in red (high COVID reproduction rate) back at the beginning of August. In the chart from September 1st, you can see more counties in either white or black (low or declining reproduction rate) as opposed to counties in red. This is a good sign that perhaps COVID cases have plateaued and could be headed lower. If we see cases move substantially lower over the coming weeks, that could open up equity markets to move higher. If cases stay at these positivity levels or move higher, we could see equities stay range-bound or move lower.