21st Century Business Herald reporter Shu Xiaoting intern Zhang Yahan reported that in the past week, the three major US stock indexes have collectively declined. Among them, the Nasdaq Composite index fell 3.2% weekly at 14566.70 points, the largest decline since the week ended February 26; the Dow Jones Industrial Average fell 1.36% weekly at 34326.46 points, the largest decline since the week ended September 10; and the S&P 500 index fell 2.21% weekly at 4357.04 points.
Throughout September, due to multiple factors such as high inflation expectations, slowing economic growth, rising interest rates, US debt ceilings, and supply chain bottlenecks, the three major US stock indexes fell across the board. Among them, the NASDAQ composite index fell by 5.4%, the Dow Jones Industrial Average fell by 4.4%, and the S&P 500 fell by 4.8%, ending seven consecutive months of upward momentum and recording its worst monthly performance since March 2020.
So far this year, thanks to rising commodity prices and maintained low interest rates for energy stocks and financial stocks, the Nasdaq Composite index is up 13.02%, the Dow Jones Industrial Average is up 12.15%, and the S&P 500 is up 16%.
This week marks the first trading week of October. Terry Sandven, chief equity strategist at Bank of America Wealth Management, expects volatility in U.S. stocks to intensify in October and continue until the end of the year.
While the stock market is likely to have more volatility in the future, Sanvin believes stocks remain attractive to income-seeking investors. It is understood that 42% of the companies in the S&P 500 constituents pay dividends higher than the yield on the benchmark U.S. Treasury note (currently only about 1.5%).
Given the prospect of rising inflation, Greg Bassuk, CHIEF Executive of AXS Investments, recommends adjusting his portfolio and diversifying his investments: assets such as real estate, which are less volatile and buffer downside risks in the event of a further stock market decline, and sector rotation strategies in the stock market.
<h4>U.S. inflation indicators hit a new high in August</h4>
The U.S. economic data released last week was mixed. According to data released by the U.S. Department of Labor, the number of initial jobless claims in the United States increased by 11,000 to 362,000 in the week ended September 25, exceeding the 335,000 people widely expected by the market, the third consecutive week of increase and the highest level since early August. By state, California saw the largest increase in the number of first-time jobless claims from the previous week by nearly 18,000.
The Fed's favored inflation measures were also higher than expected. According to data released by the U.S. Department of Commerce, the Consumer Expenditure (PCE) Price Index rose 4.3 percent year-over-year in August, the biggest increase since January 1991, and the Core Personal Consumption Expenditure (PCE) Price Index rose 3.6 percent year-over-year in August, the highest level since May 1991. This highlights the continued rise in potential inflation.
Manufacturing data is more optimistic. According to data released by the American Institute for Supply Management (ISM), the U.S. manufacturing activity index rose from 59.9 in August to 61.1 in September. Although raw material shortages have dampened growth across the commodity-producing sector, domestic manufacturing activity has expanded more than expected. Manufacturing accounts for 12% of the U.S. economy.
This week, investors will pay particular attention to the September non-farm payrolls report released by the US Department of Labor to further evaluate the Fed's future policy moves. Some analysts believe that if the data is stronger than expected, it may exacerbate the market's concerns about the Fed's earlier tightening of monetary policy, triggering more market turmoil. Last week, Fed Chairman Jerome Powell frankly said inflation had remained high longer than expected, while noting that the Delta variant had slowed the U.S. economy and jobs. Earlier in September, the Fed showed a "hawkish" tendency at its monetary policy meeting, reinforcing expectations that the Fed would begin to scale back its asset purchases this year and start raising interest rates in 2022 or early 2023.
<h4>Could international oil prices rise above $100/barrel? </h4>
The global energy crisis has exacerbated commodity market volatility, and rising energy prices could exacerbate inflationary woes. The Bloomberg Commodity Index (BCOM) rose 5 percent in September, up 14 consecutive months; up 29.1 percent so far this year, its biggest annual gain since 1979. U.S. WTI crude oil prices rose 14.1 percent in September and are up about 55 percent so far this year.
Fueled by factors such as crude oil and natural gas prices, energy stocks rose nearly 9 percent last week, leading the S&P 500 index with 40 percent gains so far this year. Fiona Cincotta, senior financial markets analyst at City Index, said the prospect of demand outstripping supply in the coming months was underpinning oil prices. JPMorgan believes that the growing natural gas crisis in Asia and Europe will prompt many power plants to switch to oil-based fuels, and brent crude is expected to reach $84 a barrel by the end of the year.
Summit Rohra, fund manager at Singapore's Smartsun Capital, noted that the super cycle in the energy sector has begun and will continue for years, with energy stocks likely to generate huge returns.
Michael Bapis, managing director of Rockefeller Capital Vios Advisors, said that from a fundamental point of view, many energy companies have lower price-to-earnings ratios and higher dividend yields, which is a more attractive investment option; as the northern hemisphere winter approaches, natural gas and oil demand rises further, which may exacerbate the current supply-demand imbalance; and as the economic recovery continues, looking ahead to the next 12-18 months, the related sector will be higher.
Some analysts pointed out that the stock prices of companies such as Royal Dutch Shell Plc, TotalEnergies SE, Eni SpA and BP Plc may rise further.
The production decisions made at the OPEC+ meeting on Monday could also be a catalyst for the energy sector to move up or down. Edward Moya, senior market analyst at OANDA, said that if OPEC+ sticks to its 400,000 bpd ramp-up plan in November, the energy market will soon see oil prices rise to $90/b; any increase below 600,000 bpd will push up oil prices. Bank of America said brent crude could break above $100 a barrel if strong trade, low inventories, a rebound in air travel resonate with a colder winter.
<h4>This week's global economic calendar</h4>
Monday, October 4: U.S. Durable Goods Orders for August; Sentix Investor Confidence Index for October in the Euro Area; Switzerland's September CPI; OPEC+ holds its 21st Ministerial Meeting.
Tuesday, October 5: U.S., Canada, Australia Trade Balance for August; ISM Non-Manufacturing PMI for September; Markit Services PMI for September; PepsiCo For September; PepsiCo To Announce Quarterly Earnings; France August Industrial Output; and RBA Announcement of Interest Rate Decision.
Wednesday, October 6: US September ADP employment data; The Reserve Bank of New Zealand announces interest rate decision; Eurozone Retail Sales data for August.
Thursday, October 7: Initial jobless claims in the U.S. for the week ended October 2; Switzerland's seasonally adjusted unemployment rate in September; Germany's seasonally adjusted industrial output in August; The United Kingdom's Halifax seasonally adjusted house price index for September; France's August trade account; China's September foreign exchange reserves; Mexico's September CPI; the European Central Bank's release of monetary policy meeting minutes.
Friday, October 8: US September Non-Farm Payrolls Report; Japan and Germany Trade Balances for August; RBI Announces Interest Rate Decision; RBA Releases Financial Stability Assessment Report; Bank of England Publishes Quarterly Economic Gazette; China's September Caixin Services PMI; China's September Social Financing Scale; Canada's September Unemployment Rate.
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