September Didn't Fail To Live Up To The Hype
September, October are volatile months, but Nov-Dec is usually strong.
Shipping rates and cancellations could be bad combo for retail sales.
COVID lockdown index declines, opening up chance for better economic growth.
Markets finished the month of September on a sour note, as the month is known as one of the most volatile months in the calendar year on Wall Street. September and October are considered the worst months in the trading calendar, historically. However, September has had more negative results than October. The pivotal moments in October - 1907 Crash, 1929 Crash, and Black Monday in 1987 - give October the perception that it's the worst. So, we came through September with the S&P 500 Index down just over 4.7%. Last year, September realized a loss of 3.8%. In October of last year, markets were also down 2.6%, but saw a 15% move higher from the end of October to year-end 2020. Expect more volatility ahead as markets adjust to Tapering, but that's not a reason to throw in the towel yet on 2021.
While the economic data was mixed last week, several key elements pointed to continued economic stability. Weekly Jobless Claims were higher, but Continued Claims fell week-over-week and are down 5% since extended pandemic employment benefits expired one month ago. In addition, the total persons receiving unemployment insurance has dropped considerably. This points to the continued improvement in the labor market. Imagine that, not paying people to sit a home actually incentivizes people to get a job?! GDP for the 2nd quarter was revised higher from 6.6% to 6.7%. Personal Spending surprised the market by increasing 0.8% versus 0.6%, expected. Manufacturing data was weaker than expected and PCE prices showed an increase month-over-month. PCE is the Fed's preferred inflation barometer, and it looks like inflation is not so transitory.
Renewed concerns about shipping delays and shipping rates has careful eyes watching consumer spending and labor shortages. Cancellations among shipping routes (pictured below) is causing delays for consumers to receive the items they ordered, weeks, even months, ago. At the same time, shipping rates have increased 5 fold since the pandemic began. This could put a dent in expected retail sales, right as we begin the holiday season. New & used car inventories have steadily shrunk, while the price of a new or used car has increased. This, on top of the rising prices of commodities puts the Fed in the crosshairs of beginning tapering and perhaps, raising rates in 2022 earlier than expected.
The positive news is that COVID concerns are easing. Goldman Sachs' Effective Lockdown Index has dipped consistently over the past three months. The daily positive case rate for COVID has dipped to 6.5%, a level not seen since early July. Hospitalizations due to COVID have dropped 22% over the last 5 weeks. If shipping can get back under control by adding more workers to offload containers as the docks and delays can be managed in time for the holiday season, corporate earnings are likely to stay elevated. There is a lot for us to watch going forward.