Market Share Newsletter Vol 3 Issue 20


September 28, 2021

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As the weather changes, we are reminded that September and October are traditionally known as two of the toughest months for stock investors. September is statistically the worst month for stock market returns (-1.0% on average). And the month of October can bring memories of stock market crashes in 1907, 1929, 1987 and 2008. A fall in stock prices can be expected as there has yet to be a 5% drop in the S&P 500 in 2021. There have only been a few times in the last 90 years that the market didn’t have a 5% drop or more during these months. Could this be another reason that helps explain the “Fall” season?
The point of this historical context is to remind us that drops occur and are part of investing. Knowing that drops occur helps us focus on the fundamentals in the different sectors of the market. The U.S. economy is still particularly strong and is expanding, but is decelerating to a slower growth rate. Still, the corporate earnings growth has been historically very good and like the economy, is still growing–just not as fast. Interest rates remain low and the Federal Reserve (Fed) has signaled that they will stay low. The Fed started to indicate it is going to slowly remove monetary easing later this year and will potentially raise short term rates in 2022.
Three areas we are watching that could easily cause a 5% drop or more are:
  1. COVID: While the current COVID-Delta spike seems to be easing, COVID has shown us there can still be spikes that challenge the economy, healthcare and companies.
  2. INFLATION: Inflation has been a common discussion point among investors this summer. While the most recent Consumer Price Index showed a slowdown in inflation, it is still higher than the past two decades, and producers are continuing to see their costs increase. Sustained inflation would likely include a downward adjustment to stock prices.
  3. EMPLOYMENT: The economy is constrained by a slow return of employees to the workforce—even with the historically high job openings. A shock to employment would likely cause the stock markets to adjust downward.
Investing and building portfolios for the long term means we are concerned with market drops of 5% and larger. Knowing our clients and their portfolio needs allows us to provide the necessary liquidity without selling stocks. We do expect some volatility to return to stock prices and we are ready to manage through it.
Thank you again for the opportunity to be of service to you and your family.
Paul Gifford, CFA
Chief Investment Officer
Wealth Advisory Services
Investment Management Group
Erik Clapsaddle, CFA, CFP®
V.P. and Sr. Fixed Income Portfolio Manager
Wealth Advisory Services
Investment Management Group
Considerations for your portfolio

The Economy

  • New orders of durable goods increased by 1.8% in August, more than the forecasted increase of 0.7%. This forecast was additionally revised from being down 0.1% in July to being up 0.5%. Orders for non-defense aircraft increased by 77.9%, which was their largest increase since February. Boeing reported 53 new orders in August with 55% of those orders being domestic. Unfilled orders continue to be a problem as they increased by 1% in August and are up 4% year-over-year (YoY).
  • Housing continues to be strong, but existing home sales peaked back in October 2020 at an annual sales pace of 6.73 million (the highest level since 2006). Existing home sales have declined to an annual pace of 5.88 million which is still higher than the 30-year average of 5.34 million. The median price of single-family homes has increased by 15.6% over the past 12 months and presently there is only a 2.6 month supply of existing homes for sale.
  • The Consumer Price Index (CPI) increased by 0.3% in August relative to July’s price levels. Though the monthly inflation data eased, CPI increased by 5.3% over the past 12 months and marked the fourth consecutive month that YoY inflation was 5% or greater. The rise in CPI will also have a dramatic effect on social security recipients as payments may possibly increase by the largest amount since 1982.
  • Retail sales in China only increased by 2.5% in August as they were forecasted to increase by 7% after an 8.5% increase in July. The consumer has been negatively affected by China’s extreme lockdown measures due to the Delta variant outbreak. Consumer confidence has also slipped in China, amidst many concerns over the direction of the Chinese economy.
  • The preliminary data for the manufacturing sector in both Germany and France grew at a slower pace than expected in September and the rate of growth also declined relative to August. Despite the decline and missed expectations, largely due to supply squeezes in raw materials and parts (as reported by Bloomberg), the manufacturing sector continues to grow in both countries.
Economic Data: Recent
  Actual Survey Prior
Consumer Price Index (CPI) MoM 0.3% 0.4% 0.5%
Monthly Budget Statement -$170.6b -$175.0b -$200.0b
Capacity Utilization
76.4% 76.4% 76.2%
Continuing Claims 2845k 2600k 2714k
Economic Data: Upcoming
    Survey Prior
Change in Nonfarm Payrolls   513k 235k
ISM Manufacturing   58.5 59.5
Personal Spending   0.7% 0.3%
Unemployment Rate   5.0% 5.2%
Economy chart
Source: Bloomberg


  • Costco Wholesale Corp. reported fantastic quarterly results that were ahead of expectations as revenue was $62.7 billion, compared to the forecasted $61.6 billion. Earnings per share was $3.76 versus a forecast of $3.55 and $3.13 in the same quarter last year. Most impressively, Costco’s same-store sales were up 15.5% YoY in the quarter and their e-commerce sales were up 11.2%. According to the New York Times, Costco has recently placed a “purchase limitation” on key items like toilet paper and paper towels due to supply and demand challenges.
  • The value sector has seen quite a shift over the past two weeks as the energy and financial sectors have been the two best performers in the S&P 500—energy was up 11.9% and financials were up 3.5%. The two worst performing sectors were also value sectors as utilities declined by 5.4% and real estate declined by 3.4%. Both financial and energy stocks should perform well in a growing economy, while utilities and real estate will underperform in a rising interest rate environment.
  • Though year-to-date (YTD) returns have been excellent in the U.S. as the S&P 500 returned 19.5% through Monday, there have been a few developed countries around the world whose stock markets have outperformed the S&P 500. Over the same time frame, the Stockholm 30 index, Sweden’s stock exchange, was up 25.1% and the CAC 40 index, France’s index, was up 21.3%.
Equity Index Values and Total Returns
  Value YTD 1-Year
S&P 500 4,443.1 19.53% 34.53%
Dow Jones Industrial Average 34,869.4 15.52% 28.83%
NASDAQ Composite 14,970.0 16.73% 35.64%
Russell 2000 (small-cap index) 2,281.0 16.26% 52.51%
MSCI EAFE (developed intl.) 2,338.2 11.34% 28.84%
MSCI Emerging Markets 623.1 -0.17% 20.86%
Equities chart
Source: Bloomberg

Fixed Income, Commodities and Currencies

  • The yield on the 10-year U.S. Treasury note has increased from 1.28% on September 15 to 1.49% through Monday’s close as the Federal Reserve has become more vocal about tightening monetary policy. At the most recent Federal Reserve meeting they pushed forward a 25-basis point rate increase from 2023 to 2022—though it is not specified when in 2022. This comes as no surprise to us as the economy has quickly rebounded and inflation has accelerated.
  • Norges Bank, the Central Bank of Norway, raised their benchmark rate by 25 basis points on Thursday to 0.25%. Among the world’s ten most-traded currencies, Norway became the first country to raise their benchmark rate and the Norges Bank released in an official statement that they will likely increase the rate an additional 25 basis points in December.
  • China Evergrande Group, a large diverse company based in Shenzhen, China, has been in the headlines as the company struggles with liquidity and has not made their interest payment that was due on Thursday (though it has a 30-day grace period). Based on a CNBC report, the company has more than $300 billion in overall debt and both Moody’s and S&P have moved their credit rating to the second-lowest level above a defaulted bond—Ca/CC.
Fixed Income Index Yields & Total Returns
  Yield YTD 1-Year
B’berg Barclays Inter Govt./Credit 0.99% -0.85% -0.36%
B’berg Barclays US Aggregate Bond 1.55% -1.29% -0.66%
B’berg Barclays US Corp.High Yield 3.90% 4.81% 12.03%
B’berg Barclays Municipal Bond 1.04% 1.20% 2.93%
Key Interest Rates
  9/27/21 12/31/20 9/29/16
Federal Funds Target Rate 0-0.25% 0-0.25% 0.25-0.5%
3-Month LIBOR 0.13% 0.24% 0.85%
2-Year U.S. Treasury Note 0.28% 0.12% 0.76%
10-Year U.S. Treasury Note 1.49% 0.91% 1.57%
Prime Rate 3.25% 3.25% 3.50%
Commodities & Currency
  9/27/21 12/31/20 YoY Change
Gold 1,752.0 1,911.2 -9.26%
Crude Oil 75.5 48.5 87.32%
Natural Gas 5.71 2.54 186.05%
Corn 539.5 484.0 46.83%
Soybean 1,287.5 1,315.3 28.78%
USD: Euro 1.170 1.222 0.10%
The information in this email was prepared from sources believed to be reliable; it is for informational purposes only and does not provide recommendations based on the investment objectives, financial situation, or needs of any individual or entity. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets. The information in this email is not a comprehensive statement of the matters discussed. Unless specifically indicated otherwise, this email is not an offer to sell or a solicitation of any investment products or other financial product or service or a confirmation of any transaction. If you have questions about the information in this email, please contact your trust administrator at 1st Source Bank Wealth Advisory Services or call 800 882-6935. Investment and Insurance products are:
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  • Subject to investment risks, including possible loss of the principal amount invested

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