PAS Weekly Commentary

Value Stocks Lead Market Rebound Amid Some Relief on the Debt Ceiling

The S&P 500 advanced 0.8% this week, overcoming a tough Monday session, as investors bought the dip and breathed a sigh of relief that a debt-ceiling agreement was reached in the Senate.

The Dow Jones Industrial Average outperformed with a 1.2% gain, while the Nasdaq Composite increased just 0.1% and the Russell 2000 decreased 0.4%.

Eight of the 11 S&P 500 sectors closed higher, led by energy (+5.0%) with a 5% gain and financials (+2.3%) with a 2% gain. These groups helped drive the outperformance of the Russell 1000 Value Index (+1.2%) versus the Russell 1000 Growth Index (+0.3%). Conversely, the real estate (-0.8%), health care (-0.3%), and communication services (-0.1%) sectors closed lower.

Among the many issues overhanging the market (infrastructure, supply chain disruptions, raw material shortages, and inflation, to name a few), lawmakers moved to make the debt ceiling an issue for another day. The Senate passed a bill Thursday to extend the debt ceiling by $480 billion until Dec. 3.

The news was the basis for a large chunk of the 3.3% gain in the S&P 500 from Wednesday's intraday low to Thursday's intraday high. The benchmark index, however, saw some resistance near the underside of its 50-day moving average (4438), and risk sentiment was challenged on Friday following the release of a mixed September employment report.

September nonfarm payrolls increased by only 194,000 ( consensus 450,000), which led some to reasonably argue that the Fed could delay its taper announcement past November. Beneath the headline number, however, were figures that supported the case for tapering sooner rather than later.

Specifically, private sector payrolls increased by 317,000 ( consensus 385,000); the unemployment rate was 4.8% ( consensus 5.1%), versus 5.2% in August; and average hourly earnings increased by 0.6% ( consensus 0.4%).

The latter reflected inflation pressures stemming from supply-related constraints. Rising oil prices and interest rates further reflected inflation concerns/expectations. WTI crude briefly topped $80 per barrel for the first time since 2014 while the 10-yr yield climbed 15 basis points to 1.60%.

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Data and rates used were indicative of market conditions as of the date shown and compiled by Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security. S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market. Each company’s security affects the index in proportion to its market value. NASDAQ Composite Index is a market value-weighted index that measures all NASDAQ domestic and non-U.S. based common stocks listed on the NASDAQ stock market. Dow Jones Industrial Average is a widely used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue chip stocks, primarily industrials, but also includes financial, leisure and other service-oriented firms. Russell 2000 Index measures the performance of the smallest 2,000 companies in the Russell 3000 Index of the 3,000 largest U.S. companies in terms of market capitalization. MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.

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2021-128081 (Exp. 01/22)