Week in Review: September 10, 2021

Equity markets drifted lower over the course of the week, unable to find a catalyst to move them higher. Ongoing concerns about the Delta variant’s impact on economic growth, and news on Friday that the U.S. may investigate Chinese subsidies, and their impact on the US, weighed on the markets.

Historically, September is the weakest month of the year for the S&P 500 and the week’s decline, albeit modest, did nothing to refute that fact. After marching inexorably higher throughout the summer, markets may well experience increased volatility ahead.

For much of the year, markets have been supported by several interrelated factors, such as coronavirus vaccines, economic activity, and corporate earnings. Following the initial rollout of vaccines, the economy experienced a burst of activity as fears of the virus subsided and consumers emerged from their homes, excited to resume their pre-pandemic routines. Strong consumer spending on both goods and services pushed second quarter GDP growth to 6.6% and corporate earnings growth to 95%.

Moving forward, however, economic activity and corporate earnings are expected to moderate, as benefits of the initial rebound fade. Scrutiny of monetary policy will also intensify as investors await the Federal Reserve’s tapering decision. All of this will come against the backdrop of elevated equity valuations which by nearly any measure are stretched. In addition, it remains to be seen how the Delta variant might impact economic activity. Thus far, economic data has held up remarkably well, even as new cases, hospitalizations, and deaths have reached levels not seen since the start of the year. However, should economic activity begin to suffer, so too might financial markets.