Stock markets had opened higher Monday on signs of a U.S. slowdown pushing Treasury yields down all along the yield curve. The ISM's purchasing managers index fell by more than expected from 52.8 in August to 50.9 in September. Yet the early week rally did not last long. The Labor Department's closely watched employment report dampened investors’ enthusiasm three days later. Nonfarm payrolls increased by 263,000 jobs in September after rising 315,000 in August. The report also showed the jobless rate fell to 3.5% last month, below expectations of 3.7%. As a result, the Fed will likely continue with its monetary tightening plan until the economy loses momentum. New York President John Williams reiterated that more rate hikes were needed to tame sticky inflation.
Major equity indices wiped out most of the gains seen on Monday and Tuesday. The VIX index remained virtually unchanged over the week (31.36), a threshold indicating serious unease.
Despite the sudden drop in risk appetite, the main Wall Street indexes managed to snap a three-week losing streak. The Dow Jones Industrial Average gained 1.99% week-over-week, or 571 points (down 19.38% year-to-date). The Nasdaq was up 0.73% (down 31.91% YTD) and the S&P 500 rose 1.51% (down 23.64% YTD).
European stocks also ended a week of wild market gyrations in the green with the MSCI EMU up 1.34% (down 22.99% YTD) and the FTSE up 1.41% (down 5.33% YTD). In Asia, Japan’s Nikkei rose 4.55% (down 5.82% YTD) while the Hang Seng advanced about 3% (down 24.18% YTD) though a COVID-19 resurgence has raised concerns over more lockdowns in China.
Energy sector shines againWTI crude oil prices jumped 16.54% over the week, offsetting the losses suffered since the beginning of September. Despite pressure from the U.S. to pump more, the OPEC+ alliance announced a 2 million barrels a day cut in oil production Wednesday (i.e. approximately 2% of global supply). Energy sector stocks skyrocketed on the news (+13.86%, best weekly performance since November 2020). The Energy Select Sector SPDR Fund (“XLE”) with $38.7bn under management was up 14.57%. Energy remains the sole S&P sector in positive territory this year (+48.82%).
Industrials (+2.86% week-over-week) and materials (+2.15%) fared well, but far behind energy. By contrast, most defensive sectors started the month on a weaker footing, falling for the fourth week in a row. Real estate was the worst performer (-4.15%), as higher interest rates continue to affect REITs. The same was true for utilities (-2.63%). Consumer staples edged down 0.40%.
Cannabis funds on the riseCannabis & Psychedelics were the best performers among the Trackinsight themes (+27.28% over the week). Though marijuana ETFs have been put through the wringer since the beginning of the year, they rebounded sharply this week amid rising demand in the U.S. (+33% expected from 2021) as evidenced by the performance posted by the AdvisorShares Pure US Cannabis ETF (“MSOS”, +32.92% with $664.5mio under management – best cannabis fund of the week).