This week, CIO Tom Weary, CFA®️, kicks things off with news from Wednesday’s meeting of the Federal Reserve. He then covers the latest economic news, including October’s Jobs Report, before sharing Q3 earnings for RFA holdings Akamai Technologies, Prudential Financial, and Mondelez International.

Transcript

Hi, I’m Tom Weary here at Reilly Financial Advisors with your Weekly Market Update. Well, we heard from more of our companies on the earnings front this week, we have some new economic data to review, but first let’s turn to the all important Fed meeting that occurred on Tuesday and Wednesday.

The Federal Reserve surprised exactly nobody at the conclusion of their meeting on Wednesday this week. The central bank, as expected, announced it will begin tapering its bond buying program later this month at a rate of $15 billion at a time. This signals their belief that the economy is strong enough to remove stimulus. And in the statement the central bank also said it is prepared to alter the pace of purchases if warranted by changes in the economic outlook. During his post meeting news conference on Wednesday afternoon, Fed Chair Jay Powell noted that there’s further ground to cover before the economy reaches maximum employment and thus it’s not time to raise interest rates yet. So keep in mind, that the Fed is still adding stimulus to the economy and will do so until mid year 2022, just slowing down the $120 billion per month pace that they have pursued thus far. Monetary policy is still easy and will be for quite some time.

We had several looks at the economy this week, including reports from the Institute of Supply Management and their October Purchasing Managers Index reports. On the manufacturing side, the PMI came in at 60.8 which was slightly above economists’ estimates, as you can see in this first chart. Keep in mind that any reading above 50 indicates expansion.  On the services side, we had an even more surprisingly strong reading of 66.7 versus expectations of only 62. As you can see in this chart, this reading is a new high and represents a surge of activity in the much larger services sector of the U.S. economy. Turning to the employment picture, on Wednesday we had a much stronger than expected reading from payroll processor ADP regarding non-farm private employment, when payrolls came in at 571,000 versus expectations of only 400,000, as you can see in the next chart. However, as we can see in this next chart, even with a strong recovery private non-farm payrolls are still well below the pre-pandemic trendline. This is one reason why the Fed is in no rush to shut off monetary stimulus.   And on Friday, the Bureau of Labor Statistics reported that October Nonfarm Payrolls increased 531,000, well above the 500,000 expected by economists. Gains for August and September were also revised upwards. They also reported a drop in the unemployment rate to 4.6%, illustrating that the economy continues to heal from the pandemic plunge.

Akamai Technologies on Tuesday reported better than expected third quarter results as the Internet content distribution network operator saw strong growth coming from its security technology business. Following the close of trading, Akamai said it earned $1.45 a share on revenue of $860 million. Wall Street analysts had forecast Akamai to earn $1.39 a share on $852 million in sales. The company said security technology sales rose 26% from a year ago, to $335 million, while edge technology revenue of $526 million was essentially flat with last year’s third quarter. Akamai’s board also authorized another $1.8 billion for stock repurchases in addition to the current share buyback plan.

Prudential Financial blew away the consensus estimate, reflecting strong investment performance across its businesses. Third quarter earnings per share of $3.78 beat analysts’ estimate of $2.73 by more than a dollar. Chairman and CEO Charles Lowry stated that “We also made significant progress executing against our transformation strategy to become a higher growth, less market sensitive and more nimble company by advancing our cost savings program and reaching agreements to sell all our full service business and a portion of our traditional variable annuities business.”  That was a pretty impressive quarter.   Let’s hope that they can keep up the good work.

Snack food giant Mondelez reported net revenues for the three months that ended September 30th rose 7.8% to $7.2 billion versus analysts’ expectations of $7.1 billion the Chicago based company posted net income attributable to the company of $1.3 billion for the quarter compared with $1.1 billion in the same period last year. Earnings of $0.71 per share beat Wall Street analysts’ estimates by a penny. The company said it booked higher raw material and transportation costs during the third quarter, partially offset by what it described as pricing and manufacturing productivity. The maker of Oreo cookies, Toblerone chocolate and Sour Patch Kids candy is raising prices around the world, as Mondelez pays more for ingredients, transportation and wages and as demand for its products grows.

So, what does it all mean? The U.S. economy continues to heal from the shock of the pandemic, but has not has not yet fully recovered. In a well telegraphed move, the Federal Reserve announced their intention to begin throttling back on monetary stimulus, but at a very measured pace. Companies continue to surprise with strong earnings, driving stock prices to new record highs.  We are through the bulk of third quarter earnings reports, but we will still have more to review next week. In the meantime, please sit back, relax, have a great weekend, and join us next week for the Weekly Market Update.

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