Global equity markets finished mostly lower for the week. In the U.S., the S&P 500 Index closed the week at a level of 4,683, representing a loss of 0.27%, while the Russell Midcap Index moved 0.01% higher last week. Meanwhile, the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned -1.00% over the week. International equity performance was mixed as developed, and emerging markets returned -0.34% and 1.71%, respectively. Finally, the 10-year U.S. Treasury yield moved higher, closing the week at 1.58%.
Last week’s Capital Markets Update discussed the Fed’s plans to Taper, Narrow, and Tighten (TNT) its current accommodative policies. This week, we will discuss developments in fiscal policy coming from Washington D.C. We will also report on the release of the Producer’s Price Index (PPI) and Consumer Price Index (CPI) for October, key indicators of inflationary pressures within the economy.
The long-awaited $1.2 trillion infrastructure spending package was passed by the House of Representatives on Friday, November 5th, and is expected to be signed into law by President Biden at a White House ceremony on Monday, November 15th. Our readers will likely recall that the Senate passed the infrastructure bill in August. The bill’s delay was partially due to House leadership using the bill as a tool to help move a larger fiscal package through Congress. President Biden’s “Build Back Better” program started in August as a $3+ trillion initiative that included many social spending and climate change objectives. The House of Representatives is currently debating and structuring a revised “Build Back Better” bill that is approximately $1.75 trillion in size. The House leadership has made statements and taken some procedural votes that would indicate that this bill will pass the House vote and move to the Senate during the week of November 15th. Regardless of these statements, the passage in the House will require total unity among Democrats. A small group of House members has stated that they will not vote for the bill until they review an economic analysis from the Congressional Budget Office (CBO) of its longer-term impacts on the current budget deficit. Only time will determine the nature and size of the bill that is ultimately sent to the Senate.
Interestingly, there has not been much conversation or analysis on the effect these two large fiscal spending packages will have on the persisting inflationary pressures within the U.S. economy. Perhaps when the CBO’s analysis becomes available, the debate over the current spending packages will include the inflationary impacts of the proposed fiscal policy.
On the topic of inflation, last Tuesday, the U.S. Department of Labor released the Producer Price Index (PPI) for October. The index increased 0.6% in October and 8.6% for the 12 months that ended in October. The release was followed on Wednesday with the Consumer Price Index (CPI), representing the prices of a basket of products ranging from gasoline and health care to groceries and rents, rose 6.2% from a year ago, the most since December 1990. The annual CPI data compared with the 5.9% Dow Jones consensus estimate. On a monthly basis, CPI increased by 0.9%, higher than the 0.6% consensus estimate.
Investors should consider the information and data discussed within this market update and many other factors when managing their investment portfolios. However, with so much data and so little time to digest it all, we encourage investors to work with experienced financial professionals to help process all of this information in order to build and manage the asset allocations within their portfolios consistent with their objectives, timeframe, and risk tolerance.
Best wishes for the week ahead!
Please note: CPI and PPI data are sourced from the U.S. Department of Labor. Equity Market and Fixed Income returns are from JP Morgan as of 11/12/21. Rates and Economic Calendar Data from Bloomberg as of 11/12/21. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index, U.S. Large Cap defined by the S&P 500. Sector performance is measured using the GICS methodology.
Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion and Walsh cannot guarantee the accuracy of said information and cannot be held liable. You cannot invest directly in an index. Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against a loss.
Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against loss.
Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity.
Products that invest in commodities may employ more complex strategies which may expose investors to additional risks.
Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than the original cost upon redemption or maturity. Bond Prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.
MSCI- EAFE: The Morgan Stanley Capital International Europe, Australasia and Far East Index, a free float-adjusted market capitalization index that is designed to measure developed-market equity performance, excluding the United States and Canada.
MSCI-Emerging Markets: The Morgan Stanley Capital International Emerging Market Index, is a free float-adjusted market capitalization index that is designed to measure the performance of global emerging markets of about 25 emerging economies.
Russell 3000: The Russell 3000 measures the performance of the 3000 largest US companies based on total market capitalization and represents about 98% of the investible US Equity market.
ML BOFA US Corp Mstr [Merill Lynch US Corporate Master]: The Merrill Lynch Corporate Master Market Index is a statistical composite tracking the performance of the entire US corporate bond market over time.
ML Muni Master [Merill Lynch US Corporate Master]: The Merrill Lynch Municipal Bond Master Index is a broad measure of the municipal fixed income market.
Investors cannot directly purchase any index.
LIBOR, London Interbank Offered Rate, is the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London.
The Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.
The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.
DJ Equity REIT Index represents all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as Equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. These companies are REITs that primarily own and operate income-producing real estate.