September lived up to its reputation as a down month for the stock market with the S&P 500 dropping 4.8%. The index was +0.20% for Q3. An all-time high of 4,545.85 was reached on September 1, 2021. The September loss was the biggest loss since March 2020, all according to FactSet.
Core CPI rose 3.6% in August, the highest in 30 years. The 10-year US Treasury closed the month at 1.51%. You can now earn 1% on a 5-year US Treasury note. Fed. Chair Powell, who is soon up for re-nomination, continues to call inflation "transitory". Senator Warren calls Powell a "dangerous man," citing her displeasure with his regulatory track record. Powell is expected to be retained for another four-year term by the Biden Administration, but one never knows.
The economy expanded at a 6.7% annual rate in Q2 vs 6.3% in Q1, according to Federal Reserve data. Holiday spending is expected to be up from 2020 as 30% of consumers intend to spend more this shopping season, according to the Wall Street Journal.
Growth stocks are dropping as the US Justice Department is concerned about monopolistic behavior from big tech companies like Amazon, Apple, Facebook, and Google. Rising rates have hit smaller cap growth stocks including Cathy Woods’ ARKK flagship fund, which is down 30% from its February 8th, 2021, peak.
As most investors know, the market does not like uncertainty. The political landscape out of Washington has created self-inflicted distress in the form of fiscal uncertainty, foreign policy uncertainty, and tax-level uncertainty as President Biden's approval ratings sink.
We anticipate a rocky October as Congress wrestles with the two infrastructure bills which will determine tax and spending for the next few years. Energy policies and supply chain missteps, both here and abroad, are causing shortages of natural gas. Price rises in the fossil fuel complex are happening as demand picks up as winter approaches for much of the world’s major economies.
Macro factors will play an important role in the market’s direction for the remainder of the year. The size of the second "infrastructure" bill, which includes both tax hikes and entitlement expansions, is key for investors.
The coming months shall provide answers to some questions and concerns that face our nation. Higher rates look likely as the Fed. begins to taper their $140 billion per month bond buying program. The Q3 earnings season will allow investors to gauge economic growth levels. So far, the world’s de facto currency, the US dollar, has held firm; but that too may change.
Enjoy the fall weather!
All the best,