Last week is a good example of investor uncertainty about the markets. After falling sharply to start the week, all US major stock indexes managed gains.
The Dow rose .62%, the S&P 500 .52%, the Nasdaq inked out a gain of .03%, and the Russell 2000 rose .51%.
Over the pond, foreign stocks dropped (.26%) while emerging markets stocks lost (1.01%).
Bond yields moved higher with the 10 Year US Treasury yield rising to 1.46%
Looking forward, the markets will face a lot of news, some potentially more “market-moving,” than others.
- The Federal Reserve finally indicated they will start pulling back on their $120 billion in monthly bond purchases, most likely in November. 9 of the 18 Federal Reserve Members now have expectations of raising rates by the end of 2022, not 2023. This is the reason for the 10 Year Treasury yield moving higher last week from 1.39 to 1.46%. This is significant if the Fed follows through. It’s like the vodka coming out of the punch bowl, or perhaps similar to taking the training wheels off of your son/daughters first bicycle.
- Not surprising, we’re now facing a possible government shutdown as we’ll run out of money to pay our bills unless more debt is authorized SOON. Both parties will attempt to use this to their advantage, however at the end of the day, additional spending will likely be passed. The last time the government shut down was January 2019. The shutdown lasted about 1 month. We survived!
- This week, the House will attempt to pass the 1 trillion-dollar infrastructure bill, and the 3.5 trillion-dollar social spending bill. As of this morning, it looks like a Thursday vote. The outcome of this bill will impact all of us, either directly or indirectly.
So, what about the economy? With all of the supply shortages starting to appear, I’m thinking of ordering client holiday cookies early!! Nike is suggesting they may not have enough sneakers…. Costco is limiting the amount of paper towel purchases… and I’m sure we’ll start to hear more, in addition to the ongoing saga in the automobile industry.
It’s been reported at the ports in California, there is a 60-plus ship backup, to dock and unload. This 3-week delay is being blamed on everyone, with the main blame being labor shortages. The costs to move goods from overseas to the US has increased significantly, along with labor costs. This is definitely contributing to the current inflationary environment we’re experiencing. The concern being, this backup takes longer than anticipated and inflation persists well into next year, as the economic and monetary stimulus fade away. Low growth combined with inflation will be unwelcome. I’m not predicting stagflation however it is certainly a concern worth watching.
For now, let’s enjoy watching our government debate new spending and new taxation. No matter the result, planning opportunities will exist, and as always, we’ll get through it just fine in the end!!