- The infrastructure bill, which passed on Friday, will be signed by President Biden this week with the conversation quickly shifting to the social spending bill. This will be hotly debated over the weeks or even months to come but with minimal expected impact to markets.
- The Federal Reserve’s (Fed) decision last week to begin tapering their bond purchases was widely regarded as a success due to its necessity and its clear messaging from Fed leadership. This stands in contrast to the 2013 taper tantrum episode. This does not represent “tight” Fed policy, only slightly less accommodative policy.
- The majority of earnings season is in the rear-view mirror and several trends are emerging as the low base effects from 2020 earnings begins to fade. Profit margins remain near a record, reflecting that firms with pricing power have not been afraid to raise prices when confronted with supply chain bottlenecks and tight labor trends. Forward estimates for Q4 and 2022 have remained relatively flat, which stands in contrast to the recent history of steadily increasing estimates. This is to be expected as business conditions normalize and outsized levels of fiscal and monetary stimulus slowly fade.
- Digital (crypto) assets received a tangible sign of progress from regulators last week after the President’s Working Group issued their report on stablecoins. Stablecoinsare digital assets designed to maintain a stable value relative to a true fiat currency like the U.S. dollar. This report is a good first step towards gaining what should be better regulatory clarity in 2022 for all digital assets and their infrastructure.
A look back
- The MSCI ACWI edged 1.6% higher for the week with support from strong corporate earnings. Small and mid cap U.S. shares had a particularly strong week, advancing 6.5% and 4%, respectively.
- The Fed commenced its well-telegraphed plans to begin tapering monthly asset purchases. Taper is expected to be completed in mid-2022.
- U.S. jobs data surprised to the upside with 531,000 new jobs added in October. Not only did this beat consensus estimates but prior months saw sizable upward revisions.
A look ahead
- 90% of S&P 500 earnings have reported, with results exceeding expectations by roughly 10%. Key themes have been 1.) Near record profit margins as companies have raised prices and 2.) Forward guidance leveling off as low base effects fade.
- Several Fed officials fan out to speak on the heels of last week’s tapering announcement.
- Economic releases: NFIB Small Business Optimism, Producer Price Index, Consumer Price Index, Wholesale Inventories, Univ. of Michigan Consumer Sentiment, JOLTS Job Openings.
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