Report (Premium Edition) 10-4-2021

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 5004357.051.15%49.524375.194288.52Bear
Crude (WTI)76.1980.63%0.47776.2275.301Bull
10 Year147.90%0.96%0.0141.51.455Bull
US Dollar Index93.753−0.34%−0.31894.10493.731Bull

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-0.50%-5.30%-2.80%13.40%-3.70%41.20%80.60%Bear
 Communication Services-1.70%-4.70%-0.70%19.80%2.70%70.00%66.70%Neutral
 Consumer Cyclical-2.60%-2.40%-0.50%14.20%-2.90%81.10%166.70%Neutral
 Consumer Defensive-2.00%-4.10%-0.60%5.10%-12.10%38.80%49.40%Bear
 Energy5.90%14.80%-0.20%51.60%34.40%-19.10%-6.70%Strong Bull
 Financial Services0.00%0.30%3.80%31.10%13.90%45.60%111.90%Strong Bull
 Real Estate-1.50%-5.90%1.60%23.90%6.70%43.80%45.80%Bear

Key Drivers for the Week of Oct. 4, 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.

  • Supply constraints slowing growth, boosting inflation, giving rise to stagflation talk
  • Debt limit gets kicked down the road, infrastructure bill stalls in Congress
  • U.S. jobs report, services PMI may help determine timing of QE trimming
  • Canada releases employment report, Ivey PMI; BoC Governor Macklem speakd
  • China holiday for Golden Week, releases September services PMI
  • Japan reports Tokyo CPI, services PMI, consumption, current account due
  • India RBI expected on hold; Australia RBA expected steady; RBNZ seen hiking
  • Eurozone services and composite PMIs, PPI, retail sales; ECB minutes
  • Germany reports industrial production, trade data, manufacturing orders
  • U.K. data on services and composite PMIs, CIPS construction PMI    

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: Stagflation Coming?


Q4 kicked off under the same pandemic clouds and bottlenecks that plagued Q3 and which deflated global growth and boosted inflation. The markets twisted and turned around the myriad cross-currents, including the rise of the Delta variant, renewed mitigation measures, shortages of labor and material, waning fiscal support, the threat of less accommodative financial conditions, and an ongoing regulatory crackdown from China, alongside a rising and widening rate of vaccines, and expectations for a huge $3.5 trillion U.S. infrastructure package.

Congress appears to be gridlocked on the increased spending package. Progressive Democrats continue to push for a $3.5 trillion package but lack the votes to push it through. Meanwhile, Democrat leadership is trying to pass a much smaller bill that no one appears to be happy with.

Core bond yields rose to vary degrees during Q3 on rising price pressures and hawkish central bank pivots. Equities slumped too, on signs of slowing growth, rising prices, and the threat of tightening financial conditions.

The resulting growth-inflation dynamics revived the “S” word, “stagflation,” and that will be the theme over the near term. A lot of focus will be on the “stag” portion with worries supply constraints will last longer with more widespread disruptions than initially foreseen. PMIs are on global dockets and should reflect those impacts.

Cathy Wood, Chief Executive and Investment Officer of Ark Invest ($52.85 Billion AUM), believes that rotation from growth to value stocks has reduced the risk of a tech bubble burst, and is likely to extend the current bull market. “Had the equity market continued to narrow toward innovation [tech stocks], the odds of a bust… [of the] tech and telecom bubble would have increased.”

Wood goes on to add that businesses expect “a protracted recession – if not depression –” and as a result, “businesses slashed inventories and capital spending and now are grappling with record-low inventories relative to sales. As businesses scramble to catch up with demand, we would not be surprised to learn after the fact that they have double- and triple-ordered supplies only to see demand for durable and nondurable goods disappoint as, once vaccinated, consumers satisfy pent-up demand for services.”

Additionally, the key U.S. jobs report is slated and could go a long way in determining the timing of the long-anticipated QE taper. Concurrently, while many policymakers continue to play down inflationary pressures and term them “transitory,” BoE Governor Bailey has fueled tightening speculation by stressing that rates could rise even before the end of asset purchases. There are several central bank meetings this week, including the RBA, RBNZ, and RBI, with the RBNZ expected to hike rates.

Notice the S&P 500 breaking support and moving slowly to the 200MA.

U.S. markets have been buffeted by the various factors noted above, along with the fiscal policy uncertainties including reconciliation, the debt limit, and possible default. While the fiscal issues are most prominent, we expect the debt limit issue to be resolved ahead of the assumed October 18 drop dead, default date.

However, bottlenecks and shortages will be more long-lasting and impact into the new year. Recent data caused us to sharply mark down our Q3 GDP forecast to a 3.6% pace from 4.0% previously and 4.5% before that. Indeed, the vehicle sector has been crushed by semiconductor and parts shortages, while port bottlenecks have sent shock waves through the broader factory sector. Farmers report massive delays in farm equipment delivery, with many buying planting equipment that may not be available before the spring. There are also growing fears over the availability of goods for the Christmas season. All of these factors will play into the FOMC QE taper calculus, though Fedspeak has indicated nearly all are ready to begin reducing asset purchases this year.

The September nonfarm payroll report highlights (Friday). We’re forecasting a 400k increase after gains of 235k in August, 1,053k in July, and 963k in June. That should be sufficient to meet the “substantial further improvement criteria,” especially after Fed Chair Powell indicated it is the cumulation of data that is important, and the strength of one or two reports. A drop in the jobless rate, we’re forecasting a slide to 5.1% from 5.2%, should add to the evidence on the labor market’s gains. Hours-worked is assumed to rise 0.6%, after the 0.2% August increase, while the workweek holds at 34.7 for a third month. Average hourly earnings are assumed to rise 0.3% with the y/y wage gain ticking up to 4.4% from 4.3%.

The other key report this week is the ISM-NMI index (Tuesday). We expect it to fall to a still-robust 61.0 from 61.7 in August and a 64.1 all-time high in July. The headline has bounced back from the 11-year low of 41.8 in April of 2020. Attention will also be on the price gauge which dipped to 75.4 in last month’s release from the all-time high of 64.1 in July. The economic calendar also includes factory orders (Monday), trade (Tuesday), and the ADP (Wednesday), though none will carry much market weight.

Earnings will help round out the week with Pepsico (Wednesday), Constellation Brands, Levi Strauss, and RPM International (Thursday), and ConAgra (Friday). The Fedspeak slate is light with Bullard (Monday), one of the most hawkish, who discusses the economy. VC Quarles discusses libor transition (Tuesday), with the hawkish Mester speaking on inflation dynamics (Thursday).

The Canadian employment report (Friday) is the focus of this week. And while it will provide insight into the health of the domestic labor market, it will also fit into the overall outlook on global growth as bottlenecks and supply constraints are a world-wide problem. We are projecting a 100k gain in September, marginally better than the 90.2k increase in August. Some of the uptick is expected to come from the Federal election which is expected to provide a lift to jobs last month. But, but look for the gain to be unwound in October.

Meanwhile, the unemployment rate is seen decreasing to 6.8% from 7.1%. As for the other reports this week, the trade surplus (Tuesday) is expected to narrow slightly to C$0.6 bln in August from C$0.8 bln in July. Building permits (Monday) are projected to rebound 4.0% in August after the -3.9% drop in July. The Ivey PMI for September is due Thursday. Bank of Canada Governor Macklem speaks on the global financial architecture (Thursday).


This week’s regional calendar is relatively light, and will be additionally quieted by Golden Week holidays in China from October 1-7. The September services PMI will be released, however. Japan’s slate features September Tokyo CPI, the September services PMI, and August consumption. Price data, trade, retail sales and growth figures dot the calendars around the rest of the region. Central bank meetings include India’s RBI, seen on hold with rates at 4.00%. Australia’s RBA is expected unchanged at 0.10%, as the country struggles with covid lockdowns, and increasing cases. New Zealand’s RBNZ on the other hand, will likely raise its OCR to 0.50% from 0.25% after surprising markets by leaving the rate unchanged at its last meeting. Expectations were for a hike then, but fresh covid cases postponed the move.

Japan releases September Tokyo CPI (Tuesday) where overall prices are expected to dip -0.2% y/y, versus the prior -0.4% rate of decline. On a core basis, we project a small 0.1% increase versus the unchanged prior reading. The final September services PMI (Tuesday) is penciled in dipping to 47.0 after bouncing 4.5 points to 47.4 in the flash print.

It dove -4.5 points to 42.9 in August, which was a 15-month low. Growth in August consumption (Friday) is forecast slipping to 0.5% y/y after jumping to a 0.7% pace of increase from -4.3% y/y in June. August current account figures are due Friday as well. In China, the September services PMI (Friday) is expected to improve slightly to 48.0 from 46.7 in August, with the latter falling into contraction territory for the first time since April 2020. Fresh covid cases and supply constrained global growth should weigh on the headline.

India’s RBI meets (Friday) with no change to its 4.00% repo rate expected. A slow labor market recovery in the aftermath of covid lockdowns should keep the bank on hold for the time being. South Korea September CPI (Tuesday) will likely cool to 2.3% y/y from 2.6%. The August current account surplus (Thursday) should widen to $8.5 bln from $8.2 bln. Taiwan September CPI (Wednesday) is forecast dipping to a 2.2% y/y rate after accelerating to 2.4% y/y in August from 1.9% y/y in July. September exports (Friday) are estimated to have risen 25% y/y from 26.9% previously. The pace has been slowing from over a 38% clip in April and May. Thailand September CPI (Tuesday) should edge up to 0.1% y/y from unchanged previously.

Singapore September PMI (Monday) likely improved slightly to 51.0 from 50.9. The index has been above 50, albeit barely, since July 2020. August retail sales (Tuesday) are expected to improve to a 0.4% y/y clip after plunging to a 0.2% rate in July from 26.0% in June and 80.0% in May. Advance Q3 GDP (Thursday) is penciled in at decelerating to an 8.8% annual pace 14.7% previously, which was the fast growth rate since Q2 2010. Philippines September CPI (Tuesday) is expected at 4.5% y/y from 4.9%.

Australia’s docket is quite busy and features the RBA meeting on Wednesday. No change to the 0.10% OCR is expected, and indeed, the Bank expected to remain on hold for the foreseeable future. Covid lockdowns have wreaked havoc on the economy, forcing the RBA to keep rates at a minimum. The Bank tapered its QE program to A$4.0 bln from A$ 5.0 bln at its last meeting, though will likely maintain that level through the remainder of the year. For data, the September Melbourne Institute inflation gauge is due Monday. September ANZ job ads are released on Tuesday. The August trade report (Tuesday) should see the surplus narrow slightly to A$12.0 bln from A$12.1 bln. August retail trade (Tuesday) is penciled in at falling 2.0% versus the previous -2.7% outcome.

New Zealand’s RBNZ meets on Wednesday, and is expected to raise its OCR by 25 basis points to 0.50%. The Bank was expected to raise rates at the last meeting, though delayed it due to a sudden Covid outbreak, which resulted in the lockdown of Auckland. The RBNZ remains concerned over prices pressures, with inflation expected to rise above the Bank’s 2.0% inflation target midpoint. There is no data scheduled this week.


Eurozone: Germany’s election came and went without causing too much disruption. Markets were mainly relieved that there is no chance of a hard left coalition and for now Merkel will stay on during what are likely going to be very difficult coalition talks. The likely inclusion of the FDP in what is expected to be a three way coalition may mean more opposition, however, to further Eurozone integration and in particular Eurobonds going forward. And pressure on the ECB may also increase amid the jump in headline inflation that Lagarde still plays down as transitory.

Eurozone data releases this week include final services and composite PMIs (Monday) which are not expected to bring major revisions to the preliminary numbers. Data highlighted not only that bottlenecks are crimping growth, but also that price pressures are mounting. Indeed Eurozone PPI inflation (Tuesday) is expected to jump to a whopping 13.5% y/y in the August reading, and cost pressures are also starting to translate into higher consumer prices, while raising the spectre of stagflation. For now a further easing of societal restrictions and improvement on labour markets should still see Eurozone retail sales (Wednesday) rebounding in August numbers, but if energy prices in particular continue to surge, it will cut into real disposable income over the winter.

German data releases are mostly too backward looking to change the overall picture. Industrial production (Thursday) is expected little changed as car manufacturers continue to struggle with the global chip shortages and have to limit production. The German trade surplus (Friday) meanwhile is likely to have remained robust in August data. German manufacturing orders (Wednesday) are the most forward looking of the bunch and we are looking for a correction of -1.4% m/m (median -1.5%), after the 3.4% m/m rise in July.

French industrial production and trade data are also due and events bring some ECB speakers including Schnabel and Lane. The minutes of the ECB’s last policy meeting will also be released on Thursday, and could add to the flavor of the discussion on the tapering of asset purchases that was announced after that meeting.

U.K.: the sharp upward revision to the Q2 GDP numbers has added to pressure on the BoE, especially as Governor Bailey has fueled tightening speculation by stressing that rates could rise even before the end of asset purchases. Yields have risen sharply and markets are fretting about the risk of stagflation, as central bankers also highlight risks to the economy ahead.

Data releases this week include final services and composite PMIs (Monday), which are expected to confirm the slowdown in growth momentum, as delivery problems at national level add to global supply chain constraints. Price pressures meanwhile continue to build and a lack of suitable applicants for many positions is pushing up wage offers. The CIPS construction PMI (Wednesday) for August is also due.

Switzerland: The calendar has inflation (Monday) and unemployment data (Thursday) and the Swiss KOF institute is publishing its autumn economic forecast on Wednesday.

Data Week of Oct. 4, 2021

The first full week of October culminates with the September jobs report, where we expect a 400k payroll rise and a jobless rate drop to 5.1% from 5.2%. We expect solid August gains for factory orders, both with and without transportation, and a slight August widening in the trade deficit, with gains for both exports and imports. We also expect solid August gains for both wholesale sales and inventories.

Week of October 4

We have sharply marked down our U.S. Q3 GDP growth outlook due to substantially greater supply chain and hurricane Ida disruptions than we had assumed. The vehicle sector is getting crushed by semiconductor and parts shortages, and port bottlenecks have sent shock waves through the broader factory sector. Farmers report massive delays in farm equipment delivery, with many buying planting equipment that may not be available before the spring. Here is an entertaining twitter thread from Oklahoma that captures the flavor of farm sector struggles to find equipment.

Housing wants to boom as home prices soar, but shortages of skilled labor and building materials, combined with substantial bottlenecks from the lot development and permitting process, are fueling a likely Q3 drop in residential investment, as big Q2 declines. We continue to unwind last winter’s building and sales surge, though weekly MBA data reinforce our assumption that we’ll see a counter-seasonal bounce into the winter as NSA activity subsides to leave diminished capacity constraint impacts.

Imports in the August advance report were stronger than we had assumed despite port disruptions. This highlighting the remarkable import-dependence of the U.S. economy, as Washington stimulus is being massively “exported” to Asian production centers.

The energy sector has revealed both surprisingly strong petroleum import volumes and disappointing exports, as Ida disruptions to production and refining add to setbacks from permit moratoriums, pipeline disruptions, and petroleum industry hesitancy to commit to the sector despite massive global supply shortfalls that have been particular intense in Europe and China. The U.S. is awash in the supply of untapped natural gas, oil, and coal, just as Washington begs Saudi Arabia for heightened output, companies in Europe prepare for plant shutdowns in the face of outsized energy price gains, and China struggles to ramp up coal supply.

We now assume Q3 GDP growth of just 3.6%, following estimates of 4.0% yesterday, 5.4% before Tuesday’s advance report, and 5.6% last week before reports of heightened auto industry disruptions.

Overall, the U.S. economy is being hobbled by the details that are preventing vehicles from being assembled, the ports from going to 24/7 operation, and the energy sector from responding to the global need for product. All the while, U.S. consumers are perusing Amazon for goods to import with their bottomless pit of stimulus dollars, hoping that delayed delivery won’t prevent goods from arriving before the holidays.

Factory Orders: 1.2%

Factory orders are expected to rise 1.2% in August, with a 0.4% ex-transportation increase. Shipments should grow 0.1%, while inventories rise 0.7%. The forecasts reflect the 1.8% durable goods orders rise with a 0.2% ex-transportation rise and a 5.5% gain for transportation orders, alongside a -8.4% drop in defense orders. Boeing orders rose to 53 in August from 31 in July, and a 3-year high of 219 planes in June. The vehicle assembly rate improved to 9.5 mln in August from 9.3 mln in July. The factory goods I/S ratio should rebound to 1.48, after falling 1.47. We saw an all-time high of 1.70 in April of 2020. The durable goods I/S ratio bounced up to 1.79 from 1.76 in July, versus a 2-year low of 1.74 in January and an all-time high of 2.39 in April of 2020 for a series extending back to 1992. We expect significant gains in factory orders, shipments, and inventories into the end of 2021, as companies scramble to rebuild inventories.

ISM-NMI: 61.0

The ISM-NMI index is expected to fall to a still-robust 61.0 from 61.7 in August and a 64.1 all-time high in July. We saw an 11-year low of 41.8 in April of 2020, and an all-time low of 37.8 in November of 2008. We’re seeing a broad pull-back in sentiment from March-May peaks, though we did see big gains for both the Empire State and Philly Fed, and a pop for ISM, alongside drops for the Chicago PMI and the Richmond and Dallas Fed indexes. We expect all the measures to trend toward more historically typical levels into year-end as the Q1 boost from stimulus and vaccines fades.

Trade Deficit: -$70.5 bln

The trade deficit is expected to widen in August to -$70.5 bln from -$70.1 bln in July. We expect exports to grow 0.6% to $214.2 bln, while imports fall 0.6% to $284.7 bln. The trade deficit should average -$69.7 bln in Q3, after gaps of -$69.5 bln in Q2 and -$70.9 bln in Q1. For 2021, we expect a -$68.0 bln average deficit, versus a -$56.4 bln average in 2020. Oil prices eased through August, creating headwinds for petroleum sector trade, while trade in vehicles fell sharply after a temporary July bounce but big prior 2021 declines through May attributable to semiconductor shortages. We expect a seasonal widening in the bilateral goods balance between the U.S. and China to the $34 bln area, though trade will be crimped going forward by the closure of Chinese ports and big west coast backlogs in the U.S. We saw a -$43.1 bln all-time wide bilateral gap in October of 2018.

Initial Jobless Claims: 350k

Initial jobless claims are expected to fall -12k to 350k after a climb to 362k from 351k in the BLS survey week, leaving the measure well above the 312k cycle-low at the start of September. The bulk of the recent spike is in California, while the boost from hurricane Ida unwound given the pullback for claims in Louisiana. The end of extended federal benefits on September 6 may be prompting a rise in initial claims. Claims are poised to average 340k in September, after 352k in August, 394k in July, and 394k in June. A 351k BLS survey week reading topped the 349k August survey week figure, but undershot prior readings of 424k in July and 418k in June. We assume a 400k September payroll rise, following the lean 235k August gain, but prior outsized 1,053k July increase.

Continuing claims fell by -18k to 2,802k in the week of September 18, following an upwardly revised 2,820k figure. We expect continuing claims to decline to 2,740k for the week ending September 25. Continuing claims have fallen sharply since late-July, though we’ve seen a flattening in this steep downtrend since then. Continuing claims fell by -106k 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.

Employment: 400k

We expect a 400k September nonfarm payroll increase, after gains of 235k in August, 1,053k in July, and 963k in June. We assume a 30k factory jobs increase in September, after a 37k August increase. We assume a jobless rate drop to 5.1% from 5.2% in August and 5.4% in July. Hours-worked are assumed to rise 0.6%, after the 0.2% August increase, while the workweek holds at 34.7 for a third month. Average hourly earnings are assumed to rise 0.3% after gains of 0.6% in August and 0.4% in July, while the y/y wage gain should tick up to 4.4% from 4.3%. In the last expansion we saw a 3.5% peak for y/y wage gains, in both February and July of 2019, before the pandemic-boost to an 8.0% peak in April of 2020, and the ensuing strength in wage gains that has allowed continued robust y/y increases. We expect a solid payroll trajectory into the end of 2021 thanks to the last two stimulus packages and vaccines.

Wholesale Sales and Inventories: 1.4%/1.2%

Wholesale sales are estimated to grow 1.4% in August, after a 2.0% July rise, while inventories grow by 1.2% after a 0.6% July gain as seen in the advance indicators report. The I/S ratio should sustain the July drop to an 8-year low of 1.20 from a 6-year low of 1.22 in June, versus an all-time low of 1.12 in June of 2008 and an all-time high of 1.66 in April of 2020. The ratio is struggling to climb back toward the pre-pandemic reading of 1.32 in January and February of 2020. Business inventories should rise 0.7% in August, with other component readings of 0.7% for factories and 0.1% for retailers. The wholesale sector has been boosted by the robust recovery in trade with China, though trade will slow in September given the closure of some major ports in China and backlogs on the U.S. west coast. International trade is disproportionately captured at the wholesale level of production.

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