Report (Premium Edition) 09-20-2021

Tip: Use this as a quick guide on the short-term direction (1-2 weeks) of key markets. It is not a signal to buy or sell, just to show the trend. This is a quick cheat sheet to know the trend and help understand what is happening with the markets in the short term. I started making this section years ago because once had a client that would call me nearly every day asking the direction of the markets.

S&P 5004432.98−0.91%−40.784471.524427.76Bear
Crude (WTI)70.458-2.00%1.43672.05670.182Neutral
10 Year132.60%−2.86%−0.0391.3721.323Neutral
US Dollar Index93.3790.14%0.13393.45393.205Strong Bull
VIX25.422.06%4.5925.7724.15Strong Bull

Tip: Use this section to know the performance of various sectors, weight portfolios, or look for trades. Modern portfolio theory stresses the importance of diversification, but recently several sectors like technology have outperformed others like utilities. This is also a way to narrow the sectors to find investment opportunities.

REIT Alert: Due to Covid-19, there is a large percentage of people that have not paid rent or mortgages. Following the Supreme Court ruling stopping the eviction moratorium, we are very worried about the effect it could have on real estate investment trusts (REITS) value. Even though the sectors may trending bullish, we believe that REITs could have a significant drop in value.

Sector Name5-Day Return1-Month Return3-Month ReturnYTD ReturnYTD Return vs S&P 5003-Year Return5-Year ReturnTrend
 Basic Materials-3.10%-4.20%-1.10%13.90%-5.30%39.60%86.30%Bear
 Communication Services-1.00%2.10%4.30%22.30%3.20%76.60%72.20%Bear
 Consumer Cyclical0.70%3.60%5.20%16.60%-2.50%87.10%177.00%Bull
 Consumer Defensive-0.60%-2.10%2.00%7.70%-11.50%40.10%54.60%Bear
 Financial Services0.20%-1.10%4.40%28.60%9.40%40.60%109.40%Bear
 Real Estate0.00%-0.10%3.50%26.90%7.70%43.10%52.50%Bear

Key Drivers for the Week of Sept. 20, 2021

TIP – This is a 1-minute brief bullet-point summary. It is a tool that gives investors and financial a fast and simple list of what to watch for and talking points for the week.

  • FOMC, BoE, BoJ, SNB lead a gaggle of 13 central bank meetings this week
  • US Congress debt limit debate
  • Fed expected on hold but guidance likely points to late 2021 taper announcement
  • Focus on FOMC projections and especially the dot plot including 2024 estimate
  • BoE already signaled a hawkish rate outlook, but not likely to push it forward
  • BoJ firmly on hold, expected to downgrade the outlook on growth, production
  • SNB to maintain negative rates, look to other CBs for policy course
  • U.S. data on housing starts, new and existing home sales, jobless claims
  • Canada’s election Monday, polls showing a dead heat
  • Public holidays in Japan, China, Korea, Taiwan, HK to lighten activity
  • Eurozone preliminary PMIs; German Ifo confidence index, PPI due 
  • UK data on preliminary PMIs, CBI industrial trends, GfK confidence

Stocks & ETF Watch List

Tip: Use this section to find stocks and ETFs to add value to your portfolio by increasing the alpha (return) and decreasing beta (beta). Our list is updated monthly to help provide our readers with timely insights. Readers should do their own research before making any investment. In order to make our report easier to read, we are now including the stocks as lists for readers in separate posts.

  • Inflation Stock Picks: List of stocks that we think should perform better in a rising inflation environment. Click here
  • Auto Parts Stock Picks: Auto parts companies are likely to see their stocks rise as the average age of cars and light trucks increased from 11.9 years in January 2017 to 12.2 years in January 2021, according to new data from IHS Markit. Below are the top auto parts companies that investors should buy now before the profits roll in. Click here.
  • Solid Picks: This group of stock/ETF picks is likely to experience growth and perform well into the near future. Click here.
  • Dividend Stocks: List of stocks that have excellent dividends and business performance. Click here.
  • Dividend Growth Stocks: List of stocks that have a history of growing dividends. Click here.
  • Dividend ETFs Picks: This list of ETFs is selected for their ability to pay dividends. Click here.
  • Dogs of the Dow: This list of DOW stocks based on H. G. Schneider’s Article in the Journal of Finance in 1951 that used the price-earnings ratio. The general idea is that blue-chip companies that pay a dividend are more likely to withstand an economic downturn. Click here.

Week Ahead: FOMC, Debt Ceiling & Taxes


In the U.S. the FOMC is front and center. There has been considerable angst since before the August Jackson Hole summit whether the Fed would be announcing a timeline for QE tapering by the fall. Clearly, a lot of progress has been made since the pandemic and indeed some indicators are above their pre-pandemic levels. And the question for the Committee is whether there has been “substantial further progress.”

We don’t believe so and we suspect that will be the consensus vote too. Signs of slipping Q3 growth should give policymakers pause, indeed we revised down our Q3 GDP forecast to a 5.6% pace of growth from 7.0% previously. Additionally, Chair Powell indicated at the July 28 press conference there was still “substantial slack” in the labor market and the disappointing 235k increase in jobs in August supports that view. His assessment and the various headwinds seen over the last 8 weeks should keep policymakers on a cautious, wait-and-see course, though hinting at a likely taper announcement later this year.

Markets are testing support levels.

Along with any indication of QE tapering, much of the attention will be on the Summary of Economic Projections (SEP) and especially the dots that will be included. Will the median dot be pulled forward to reflect a rate hike in 2022? Will, there be more hikes included, and how many will be seen for 2024?

We expect the Fed to mostly repeat their funds rate estimates, though with some up-drift, and an upshift in the 2023 median to 0.6% from 0.4%. Estimates will be introduced for 2024, and we expect these figures to largely mimic the current 2023 growth and inflation estimates, with a 1.4% median funds rate estimate. As for the other projections, we expect a sharp cut for 2021 GDP growth, huge 2021 boosts in the PCE chain price estimates, and a slight lift in jobless rate estimates.

The 10YR should be moving up but is still below the 200MA. Expect to see movement after the FOMC.

For GDP, we expect trimmings of -0.6% for the Fed’s 6.8%-7.3% central tendency, versus our current 6.1% forecast. We expect 0.8% increases for the headline PCE chain price forecasts and 0.4% for the core estimates from respective June central tendencies of 3.1%-3.5% and 2.9%-3.1%, versus our own projections of 4.4% and 3.6%. We expect slight upward revisions to the jobless rate of 0.1% in the June 4.4%-4.8% central tendency, versus our own 4.7% estimate.

Housing data highlight this week’s economic calendar. The market continues to be pushed and pulled by numerous factors, including the pandemic social changes, low mortgage rates, record prices, and labor/materials shortages. Housing starts (Tuesday) are expected to rebound to a 1.580 mln pace after dropping -7.0% to 1.534 mln in July and versus 1.650 mln in June. Starts were at a 15-year high of 1.725 mln in March. Permits are expected to improve to 1.660 mln after rising 2.6% to 1.635 mln in June. Existing home sales (Wednesday) are seen falling -2.8% to a 5.820 mln pace in August, after rising 2.0% to 5.990 mln in July.

This compares to a 14-year high of 6.860 mln in October. New home sales (Friday) are estimated to climb 4.5% to a 740k pace after rising 1.0% to a 708k clip. Other data this week include the NAHB housing market index (Monday), the Q2 current account (Tuesday), and jobless claims (Thursday).

While attention will be on the FOMC, fiscal policy negotiations, or rather wrangling, will be an important undercurrent for the markets. Congress is working on a variety of “infrastructure” bills, including the $3.5 bln blueprint, along with hefty tax proposals. It is likely to be over 10,000 pages when has not been released.

Perhaps most crucial government funding where the current budget authority expires at the end of the month. The debt limit is also in view with the special maneuvering to avoid the ceiling potentially running out in mid-October. As we mentioned last week, Republicans appear to be united in fighting against raising the debt ceiling limit and increased spending bills. The Democrats’ strategy appears to delay and create a sense of “urgency” so that they can pass the bills.

This week the Democrats were given a setback in passing their $3.5 trillion spending bill because Joe Manchin publically repeated he won’t support the $3.5 trillion spending bill which they needed him to pass through reconciliation. This will likely cause the Democrat strategy of creating urgency of passing something to backfire on them. This has caused the bi-partisan infrastructure bill to be in jeopardy.

A shutdown is not likely because I think that Democrats will give away their hopes of passing their large spending bills and new taxes because they will be seen as responsible. The biggest challenge will be for Democrats to get their far-left members of Congress to agree to a much smaller spending package. The markets will be volatile and definitely react to shut-down fears in the next couple of weeks. If there is a shutdown, we think there could be a 10% dip.

Also on tap are a few more earnings reports, including Lennar (Monday); Adobe, FedEx, Autozone (Tuesday); General Mills (Wednesday); Nike, Accenture, Costco, Darden Restaurants,, and Vail Resorts (Thursday).

Canada’s calendar is thin this week. However, there is one big event on the docket, the Federal election (Monday), with the latest polls showing a virtual dead heat. As for data, retail sales is the lone highlight. The report is for July, and hence will not answer the key question on the minds of many in the market — “

To what extent has the Delta variant and related pick-up restrictions impacted the consumer sector?” The flow of data from the U.S. shows that the consumer stateside has been resilient, suggestive of similar durability in Canada. In the meantime, the July retail sales report is expected to show a drop in total sales of -1.2% after the 4.2% bounce in June. The ex-autos sales aggregate is projected to contract -1.5% after the 4.7% jump in June. Recall that sales saw hefty declines in April and May.


This week’s regional economic docket is heavy with central bank meetings but light on data. The BoJ headlines, but other meetings are also slated with the banks of Indonesia, Taiwan, and the Philippines. None are expected to alter their policy stances, however. Additionally, there are a number of public holidays around the region that will quiet activity. Japan is closed Monday and Thursday, the former for Respect-for-the-Aged Day and the latter for the Autumn Equinox. And autumn festivals will shut China, Korea, and Taiwan early in the week. Korea will remain close Wednesday, with Hong Kong also on holiday. For data, Japan reports the August national CPI. Elsewhere, prices and trade data are slated. China’s calendar is empty.

Japan is on holiday Monday for Respect-for-the Aged Day and will again be shut Thursday for the Autumnal Equinox. The focus will be on the BoJ’s two-day (Tuesday-Wednesday) policy meeting where rates are expected to remain unchanged at -0.1%. It was eased to that all-time nadir from 0.1% in January 2016. And the 10-year bond yield is expected to be maintained near 0% The Bank’s view on the economy and exports and production is expected to be downgraded due to pandemic issues, including the closure of China’s third-largest port as well as various regional factory closures due to chip shortages.

The shortages are expected to persist into year-end at least which should potentially lead to a weakness for the remainder of the year. August national CPI (Friday) is expected to see the headline post a -0.2% y/y pace versus -0.3% in July. A positive rate of inflation has not been posted since August 2020, but the rate of deflation has been slowing over the past three months from -1.1% in April. The core rate is seen holding steady at -0.2% y/y, as it was in July, and has not been in positive territory since March 2020.

Hong Kong August CPI (Monday) is seen cooling slightly to 3.6% y/y after spiking to a 3.7% rate in July. That July jump was the steepest since the 4.3% pop in August 2016. The Taiwan central bank meets (Thursday) with no change to its 1.125% discount rate expected. The Bank cut rates only once since the start of the pandemic, easing 25 basis points in March of 2020.

For data, the August unemployment rate (Wednesday) is forecast to fall to 4.2% from 4.4%, and extending the slide from 4.8% in June. August export orders (Friday) are seen at decelerating to a 20.0% y/y clip from 21.4% previously. The pace has been slowing from the 49.3% y/y rate in January. South Korea August PPI (Friday) is penciled in at a 6.9% y/y rate after rising to a 7.1% pace. It’s held a 6.0% y/y handle since April, and emerged out of nine straight months of deflation in December.

In Indonesia, the central bank meets (Tuesday) with the 7-day reverse repo rate seen steady at 3.50%. A surge in covid cases this summer weighed on economic activity, while inflation has remained below target rates, allowing the Bank to keep rates relatively low. The Bank had cut rates six times since the start of the pandemic, from 6% in 2019. Singapore August CPI (Thursday) is forecast at an unchanged 2.5% y/y pace, while August manufacturing production (Friday) should ease to a 16.0% y/y clip, from 16.3%. Thailand August exports are due Thursday. Malaysia’s August CPI (Friday) is estimated to have eased to 2.1% from 2.2%. The Philippines central bank meets (Thursday) with no change to its 2.00% discount rate expected.

Australia’s economic calendar is empty, though minutes from the last RBA meeting are due on Tuesday. New Zealand has the August trade report on Friday, with the deficit expected unchanged at NZ$0.4 bln.


Eurozone: the ECB initially seemed to do quite well to keep rate speculation at bay even as it announced a slight scaling back of PEPP purchases, but this week showed that it will be tricky to prevent markets from speculating when the scaling back of asset purchases will be followed up by higher rates. And with ECB President Lagarde sounding very optimistic on the growth outlook the negative interest rate environment does seem increasingly at odds with economic developments. Against that background, there seems only one way for yields to go, although for the short-term outlook markets will mainly be looking to the Fed for guidance this week.

Data releases are likely to continue to signal that the delta variant has the potential to slow, but not to derail the recovery. Preliminary PMI readings for the Eurozone and the German Ifo business confidence index are in focus, largely thanks to a further correction in the expectations reading. The Eurozone Composite PMI is seen easing to a still strong 58.6 (median 58.5) from 590, with the manufacturing reading, in particular, correcting from recent highs against the background of supply chain disruptions and capacity constraints.

German PPI inflation and national confidence indicators are France and Italy are also due. The ECB also releases its latest economic bulletin on Thursday, although this won’t be more up-to-date than the ECB’s forecast revisions from the September meeting.

U.K.: the focus this week is on the BoE announcement on Thursday, especially with two new members at the MPC – Catherine Mann and Huw Pill. The central bank already signaled a more hawkish outlook on rates at the previous meeting, which to a certain extent pre-empted the jump in inflation and the tightness in labor markets that were the key message of last week’s economic reports.

However, retail sales numbers were pretty dismal and consumers are facing higher taxes as well as a phased out wage support, with the phasing out of the furlough scheme a key factor for the BoE’s policy decision going forward. The central scenario at the moment is for the labor market to remain tight and wage growth strong, as companies are increasingly forced to up wage offers to attract staff. Against that background, the first-rate hike could come in the first half of 2022, depending on virus developments.

Data releases this week focus on August survey data. The preliminary Manufacturing PMI (Thursday) is seen falling to 58.8 (median 59.0) from 60.3, while the services reading is expected to drop back to 54.5 (median 55.0) from 55.0, which should leave the composite at 54.2 (median 54.5) – down from 54.8 in the previous month. As in the Eurozone, readings continue to signal ongoing robust growth ahead, with staff shortages and delivery problems limiting the room for a further acceleration. The CBI industrial trends survey as well as GfK consumer confidence and retailing surveys are also due to be released.

Switzerland: the calendar this week has trade numbers, although the focus is on the SNB’s quarterly policy review on Thursday. SNB Vice President Zurbruegg recently stressed that the central bank’s negative interest rate policy remains necessary to keep a lid on the currency and we don’t expect any major changes to the central bank’s overall assessment. Looking ahead, it remains pretty clear that the SNB will look to other central banks for guidance on when to change tack and the ECB’s modest tweak of monthly PEPP volumes is not enough to prompt action from the SNB at the moment.

Data Week of September 13

The last full week of September includes the August housing reports, but we otherwise have a light schedule. Both housing starts and permits are expected to rise modestly in August. We expect a small August drop in existing home sales, but a gain for new home sales, with seasonal pull-backs in both median prices from all-time highs in June for existers and in July for new homes. The current account balance is expected to narrow from a 15-year high in Q1, while leading economic index posts another solid increase in July.

Week of September 20

The surprisingly strong August retail sales report this week reversed the downside Q3 GDP risk that unfolded earlier in September, leaving more balanced risks for our 5.6% Q3 GDP estimate. At the start of the month, we saw downside surprises for the July trade balance and the August jobs report. Later we saw weak defense spending figures in the August Treasury budget report and a surprisingly lean August Boeing aircraft delivery figure of 22 planes. We assumed these shortfalls would be made up in inventories, because of Q3 hours-worked growth of 5.3% that marked an acceleration from 4.7% in Q2, and Q3 growth for industrial production of 7.0% after a 6.2% Q2 clip. The solid path for these production indicators suggested a floor for Q3 output growth as measured by GDP. With the solid Q3 consumption data, our forecast is now consistent with 0.9% business inventory gains in August and September.

The port disruptions in China and port backlogs on the U.S. west coast, combined with Gulf coast disruptions from hurricane Ida, we may see undershoots for both imports and inventories in August and September that will have offsetting impacts on GDP growth, but which may be associated with other supply chain disruptions as we enter Q4.

For trade disruptions, the vehicle sector has been hard hit by semiconductor shortages, and on Wednesday Japan posted an August merchandise trade deficit following its more typical surplus in July due to a big drop in exports of vehicles to the U.S. The hit was likely related to the cutbacks at Toyota that are impacting vehicle output worldwide.

This year’s holiday shopping will face big inventory constraints, and some may buy early. More importantly, disruptions in the supply of parts for U.S. output could have big impacts beyond the ones already seen for vehicles, such as with the ongoing disruptions in the home building industry from out-of-stock building materials, even as lumber prices have moderated. Europe is experiencing exploding electricity prices thanks to a shortage of natural gas, and rising prices for natural gas and propane associated with this will pinch household finances in the northern states through the winter months, just as growing La Nina conditions may translate to a cold winter. Vehicle, housing, and consumer goods shortages, alongside rising energy costs, are all functions of trade related supply constraints.

Current Account: -$189.9 bln

The current account balance is expected to narrow to -$189.9 bln in Q2 from a 15-year high of -$195.7 bln in Q1. We saw a -$208.4 bln goods and services trade deficit in Q2. As a percentage of nominal GDP, the gap is expected to sit at -3.3% in Q2, down from -3.6%. We saw Q2 growth for goods, services, and income of 26.6% for exports and 20.6% for imports, as global trade in goods and services continues to rebound from the COVID-19 hit. We expect an annual current account deficit of -$732 bln in 2021, versus a high from the last expansion of -$480 bln in 2019. The deficit is sitting near to the -$806 bln record gap back in 2006.

Housing Starts: 1.580 mln

Housing starts are expected to climb to a 1.580 mln pace from 1.534 mln in July and 1.650 mln in June, versus a 15-year high of 1.725 mln in March. Permits are expected to improve to 1.660 mln from 1.635 mln in June, versus a 15-year high of 1.883 mln in January. We saw a new 15-year high for new home sales in March, and prior 14-year highs for pending and existing home sales in 2020. The MBA purchase index marked a new 15-month low at the end of July, versus a 12-year high in mid-January, and posted a -0.8% August drop, as lean inventories have crimped sales while boosting prices. Permits have followed a solid growth path that began in Q2 of 2019, fueled by low mortgage rates, with a further pandemic-lift from lower rates and migrations from cities. We expect a 1.575 mln average for starts in Q3, following new recent highs of 1.599 mln in Q1 and 1.586 mln in Q2. We expect a 1.658 mln average for permits in Q3 that falls short of the 1.670 mln average in Q2.

Existing Home Sales: 5.820 mln

We expect existing home sales to slip -2.8% to a 5.820 mln pace in August, down from 5.990 mln in July, versus a 14-year high of 6.860 mln in October. Pending home sales fell -1.8% in July after falling -2.0% in June. The MBA purchase index fell -2.4% in July and another -0.8% in August, with a weekly 15-month low at the end of July, as the index continued to fall from a January peak. The recovery in all the housing measures stalled in Q2 as the sector encountered a wide array of capacity constraints that are driving prices higher and capping sales. The months’ supply of homes posted a 5-month string of new all-time lows through January to a particularly tight 1.9, before rising to a still-lean 2.6 through July. The median sales price is pegged at $359,000 in August, slightly below the all-time high of $362,800 in June. We expect a dip in the y/y median price gain to 15.7% from 17.8% in July, and a record-large 23.6% in May. In Q2, we saw an average sales pace of 5.833 mln, after a 6.303 mln rate in Q1, and we expect a faster 5.890 mln pace in Q3.

Initial Jobless Claims: 320k

Initial jobless claims are expected to fall -12k to 320k in the BLS survey week from 332k last week, leaving the measure still above the 312k cycle-low in the week of September 4. The rise in claims in the Labor Day shortened week likely received a lift from hurricane Ida, given gains for claims in Louisiana in each of the last two weeks. Claims are poised to average 319k in September, after 352k in August, 394k in July, and 394k in June. The 349k August BLS survey week reading was well below July’s reading of 424k, as well as the 418k in June, 444k in May, and 566k in April. We assume a 475k September payroll rise, following the lean 235k August gain, but prior outsized 1,053k July increase.

Continuing claims plunged by -187k to a 2,665k cycle-low in the week of September 4, following an upwardly revised 2,852k figure. We expect continuing claims to hold steady at 2,665k for the week ending September 11. Continuing claims have fallen sharply since late-July, and we assume some flattening in this steep downtrend into Q4. We expect continuing claims to fall by -243k between the August and September BLS survey weeks, after drops of -388k in August, -116k in July, -199k in June, -42k in May, and -188k in April.

Leading Indicators: 0.9%

The leading economic index likely rose 0.9% in August, led by strength in claims and ISM orders data, after big stimulus-fueled gains of 0.9% in July, 0.5% in June, and 1.2% in May. The index continues to reverse the huge 2020 pandemic drops of -6.3% in April and -7.5% in March. We expect gains in nearly all of the components in August.

New Home Sales: 740k

We expect a 4.5% August climb for new home sales to a 740k pace, following a July rise to 708k from 701k in June. Recent sales rates sat below the high from the last cycle of 756k in January of 2020, after an 11-month stretch of overshoots through May that marked the highest rates since a 778k figure in July of 2007. We expect a median sales price to ease to $387,000 in August, down from a $390,500 all-time high in July, leaving a y/y increase of 18.9%. We expect a 743k Q3 pace for new home sales, after a 739k rate in Q2. We’re seeing rapid growth in demand for new homes in 2021. Construction has lagged sales, and the market is heavily inventory-constrained. We expect a steady climb in starts and completions through 2021 in the face of unprecedented home demand, though the sector is pressing against capacity constraints, and growth in sales beyond lofty late-2020 levels has proven hard to sustain.

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