Market Analysis
September 13 | Market news

At a glance

A modest labor market recovery and slowing growth expectations pressured equities last week.

U.S. Bank Global Health Check

The U.S. Bank proprietary Global Health Check incorporates more than 1,000 data points — including business climate factors and economic sector categories for 22 major economies representing 80 percent of total global wealth — to reflect our view of the current strength of worldwide economic growth.

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Chart of current global economic health; the data indicates a moderately strong economy (68.5) trending up.

Source: U.S. Bank Asset Management Group, September 3, 2021.

Number of the week:


The percentage of S&P 500 companies within the Utilities, Real Estate, Consumer Staples and Energy sectors offering dividends yielding more than the 10-year Treasury.

Term of the week:

Dividend – The distribution of some of a company's earnings to shareholders, as determined by the company's board of directors. Dividends may be paid out as cash or in the form of additional stock.

Quote of the week:

“Dividend-paying equities are relatively attractive over select fixed income alternatives, helping support equity prices. At present, 48 percent of S&P 500 companies offer dividends yielding more than the 10-year Treasury yield of 1.3 percent. Notably, more than 75 percent of companies within the Utilities, Real Estate, Consumer Staples and Energy sectors do so.”

Terry Sandven, Portfolio Manager, Chief Equity Strategist, U.S. Bank

Global economy

Quick take: The labor market recovery in the United States remains slow, an inflation risk. Supply constraints for goods are also lifting price pressure in the near term. Outside the U.S., growth remains modest and uneven.

Our view: Economic growth is positive and vaccination progress continues in much of the world. Coronavirus cases and hospitalizations are growing, though we may see a peak in coming weeks. Overall, the global economy is in expansion despite risks from the coronavirus, fiscal and monetary policy uncertainties.

  • Key points: hides details

    • Employers have massive unmet demand for labor as trepidation around return to work remains. Specifically, a U.S. Labor Department report shows record job openings, even though the improvement in unemployment claims is very slow. Job openings may decline as enhanced unemployment benefits end and employers offer improved wages and benefits. However, the latter could lift inflation for longer.
    • Producer prices continue to accelerate, driven by labor, aluminum, natural gas and freight rates. The faster pace of inflation is concerning if business profit margins fall or price increases damage consumer spending.
    • Foreign developed economies appear past peak acceleration, judging by European sentiment data. An upcoming German election and European Central Bank pivot to more neutral monetary policy adds to greater uncertainty about the forward path. Meanwhile, China’s heavy-handed approach to coronavirus outbreaks has the impact of creating softness during lockdowns and near-term acceleration in activity when reopening occurs. Because of this, China’s softening economy and markets may stabilize. Finally, a conversation between President Biden and Chinese President Xi Jinping shows the two countries could thaw relations, reducing some geopolitical uncertainty.

Equity markets

Quick take: U.S. equities appear to be in somewhat of a trading range, absent immediate catalysts.

Our view: We maintain our “glass half-full” orientation for U.S. equities. Rising revenue and earnings, moderate inflation and relatively low interest rates support our outlook. We expect elevated volatility until the impacts of the Delta variant and inflation become better known.

  • Key points: hides details

    • Equity performance last week was negative, but no obvious catalyst triggered the modest pullback. On balance, a “wall of worry” looms on the horizon over a potential slowing in the trajectory of earnings growth, the ongoing impact of COVID variants on the pace of economic growth and proposed changes to existing monetary and fiscal policies.
    • Year-to-date performance remains superb and broad-based. The S&P 500 is up 18.7 percent as of Friday’s close, with all 11 sectors in positive territory and nine up 12 percent or more. Both cyclical and longer-term secular-growing sectors exhibit strong performance. Broad-based strength is one indicator pointing toward higher prices. Additionally, the S&P 500 closed Friday above key areas of technical support. By these metrics, we consider last week’s pullback within the normal ebb and flow of an upward trending market.
    • Third quarter results and forward guidance are among upcoming catalysts. Both the S&P 500 and earnings are near all-time highs. At present, consensus earnings estimates for 2021 and 2022 are approximately $202 and $220 per share, respectively, according to Bloomberg, FactSet Research Systems and S&P Global. Accordingly, the index trades at roughly 22 times 2021 estimates and 20 times 2022 estimates, levels we deem elevated yet short of extremes. The third quarter reporting period unofficially begins during the week of October 11.
    • Equities remain an alternative for income-oriented investors. Dividend-paying equities are relatively attractive over select fixed income alternatives, helping support equity prices. At present, 48 percent of S&P 500 companies offer dividends yielding more than the 10-year Treasury yield of 1.3 percent. Notably, more than 75 percent of companies within the Utilities, Real Estate, Consumer Staples and Energy sectors do so.

Bond markets

Quick take: Bond prices finished last week relatively unchanged, though short-term Treasury bond yields increased slightly. Federal Reserve (Fed) officials foreshadowed a probable decision to announce a reduction in bond purchases in November.

Our view: We prefer increasing current income by allocating to bonds with more credit risk, such as high yield corporate and municipal bonds, bank loans and mortgages not backed by the government due to strong credit fundamentals. Diversified portfolios should retain some exposure to high-quality bonds, despite low yields limiting their return potential, to manage portfolio risks. Bond investors will focus on key inflation data releases this week in preparation for next week’s Fed meeting.

  • Key points: hides details

    • Multiple Fed officials commented on their desire to start reducing bond purchases. Next week’s Fed meeting could hold important guidance around how it will structure asset purchase reductions, although a formal announcement is more likely at the November meeting. The European Central Bank announced upcoming asset purchase reductions last week. If inflation and hourly earnings measures released this week are higher, it would bolster the case for the gradual removal of policy accommodation.
    • August concluded another month of below-average corporate bond defaults. Moody’s, a credit rating agency, reported only two U.S. corporate bond issuers defaulted in August, well below the long-term monthly average. High cash flows, increasing revenue growth and the low cost of debt are improving corporate issuers’ ability to pay their debts. This can be seen in Moody’s benign global default rate forecast of 1.9 percent over the next 12 months. We’re encouraged by low default frequencies and consequently prefer increasing credit risk in corporate bonds. High yield municipal, bank loans, and non-agency mortgages offer a similar opportunity to increase current income while credit fundamentals are strong.

Real assets

Quick take: Real estate struggled last week as investors priced in concerns about the economic recovery.

Our view: Real assets should continue to benefit from our glass half-full view of the economy, with the balance between owner pricing power and rising interest rates a key swing factor on the recovery.

  • Key points: hides details

    • Real Estate trailed the S&P 500 by 2 percent last week, with healthcare and office properties leading. Data centers and hotels led the decliners, although all property types were negative on the week. Performance in the sector continues to oscillate between the cyclical recovery themes and the secular growers. Real Estate has been the best-performing sector in the broader market this year, but it appears concerns about slowing growth and the removal of Fed policy accommodation started to take its toll last week.
    • Crude oil prices rose by 1 percent last week. Catalysts for the move were further declines in domestic crude and gasoline inventories, although those declines are still related to Hurricane Ida. Energy sector equities traded in line with the S&P 500 and have outperformed the broader market by 9 percent in 2021.

This information represents the opinion of U.S. Bank Wealth Management. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned.

Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses.

Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investing in fixed income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Investments in high yield bonds offer the potential for high current income and attractive total return, but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer's ability to make principal and interest payments. The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes, but may be subject to the federal alternative minimum tax (AMT), state and local taxes. There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults).

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