Equities got off to a positive start Monday, but an end-of-day sell-off in the technology and communication services sectors left the Standard & Poor’s 500 modestly lower, while the Dow Jones Industrial Average hung onto a scant 17-point gain.
Value outperformed growth, with the financial services and energy sectors leading, as Monday’s move reflected a generally positive cyclical mood.
This is consistent with the broadly upbeat tone that has led equity markets to strong year-to-date gains.
A spotlight on the strong consumer-demand environment heading into the holiday shopping season could keep a wind at the market’s back, though any surprises related to the inflation story or rising COVID-19 cases would likely inject a bout of volatility into this market that has seen hiccups of late.
Ten-year Treasury yields were notably higher Monday, following President Joe Biden’s announcement that he has nominated Jerome Powell for a second term as chairman of the Federal Reserve.
There had been some speculation that Fed governor Lael Brainard could get the nod. Instead, Brainard will be vice chair of the board of governors.
Edward Jones analysts long viewed Powell as the likely candidate, as they suspected the president and the markets would favor the continuity of another Powell term.
That continuity may prove to be particularly important given the Fed is about to embark on the next phase of the monetary-policy cycle by reducing bond purchases over the next several months.
Analysts think monetary-policy settings will remain more of a tailwind than a headwind in the coming year, but as the amount of stimulus is reduced and the first rate hike approaches, they expect equity markets to exhibit more fluctuations in response to any underwhelming economic readings.
With Black Friday approaching, the spotlight will remain on the consumer this week.
While there is no shortage of demand, it’s goods that are in short supply, with the latest reports highlighting ongoing backlogs at ports and continued challenges finding ample trucking and freight capacity.
There are some signs of incremental progress, however, with the Wall Street Journal reporting the number of container ships anchored offshore at the ports of Los Angeles and Long Beach is down to 71 from 86 a few days prior.
Analysts think supply-chain disruptions will keep upward pressure on consumer prices for a while longer but should begin to clear moving through the back half of 2022.
This will have the dual effect of relieving elevated inflation pressures and supporting increased consumption next year, with the economy accelerating from the recent soft patch.