Markets have a lot to digest over the weeks to come.
- Several Federal Reserve (Fed) officials’ speeches last week shifted tapering expectations to the November meeting. Delta variant concerns amid mixed economic data could nudge a tapering decision back by a meeting or two. Consumer Price Index (CPI) data this week will be critical at next week’s Fed meeting.
- This weekend, the House provided details about its proposed infrastructure plan and how it plans to pay for the spending, which includes tax increases. The tax hikes in the plan aren’t as much as previously estimated or originally proposed by President Biden. Negotiations will likely be complicated by the debate over raising the debt ceiling to fund the federal government beyond October 1.
- The economy and earnings both remain in recovery mode, but the confluence of potential short-term concerns could collectively serve as a catalyst for a pause in the recent march higher, which has seen new records for 41% of Q3 trading days. The 213 trading days since the S&P 500 has seen a 5% drawdown is the ninth longest in 90 years. However, since 1980, there have only been two years without at least a 5% pullback, so it would be normal to see a pullback before year end. That said, it is more important to focus on the primary trend, which is higher in our view.
A look back
- Global markets edged lower, with weakness in U.S. stocks centering around concerns for slowing economic and earnings growth. Japanese shares added to gains from the prior week following the abrupt resignation of Prime Minister Suga.
- Treasury yields were flat as investors digested mixed economic data. Next week’s Fed meeting, where tapering discussions are on the table, will also be in focus after the recent slate of data.
- Crypto assets endured a tumultuous week with concerns about increasingly aggressive regulation.
A look ahead
- The House begins its final push for its infrastructure and reconciliation bills by September 27. Negotiations have already begun trimming previous corporate and capital gains tax provisions.
- The Senate will await the House bills with the division between moderates and progressives expected to persist, raising potential risks for a government shutdown.
- Economic releases: NFIB Small Business Optimism, Inflation (CPI), Industrial Production, Retail Sales, U of Michigan Consumer Sentiment.
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