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2020 Financial Markets Update

Week in Review: September 10, 2021

September 3, 2021

Recap & Commentary

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.

Economic Bullet Points

Job openings rose to a new record high of 10.9M in July. However, despite the strong demand, potential employees appear to remain reluctant to join the workforce. The labor force participation rate stood at 61.7% in August, compared to 63.4% in January 2020, just before the pandemic. Returning to that level would equate to an additional 4.3 million individuals entering the workforce. Such an increase would likely help to alleviate some of the pressure employers currently face with attracting and retaining employees.

Producer price inflation (PPI) remained elevated in August, increasing 0.7%, but down from the 1.0% increase recorded in July. Compared to a year ago, prices rose 8.3%, the largest annual increase in nearly 11 years and up 0.5% from the prior increase of 7.8%. While the current surge in inflation is likely to be temporary, persistent supply chain bottlenecks remain, meaning overall inflation may stay elevated for longer than initially expected.

Weekly jobless claims fell to a new pandemic-era low of 310K, better than the expected 335K, and the previous week’s 345K. Continuing claims dropped 22K to 2.78M.

Of Note

Debt markets had a busy week as more than 50 companies issued over $75B of debt, seeking to take advantage of strong demand and lock in funding needs in advance of the Fed’s expected tapering announcement later this year.

S&P 500-1.7%
Small Caps-2.8%
Intl. Developed-0.3%
Intl. Emerging-0.5%
U.S. Bond Market0.0%
10-Year Treas. Yield1.33%
US Dollar0.6%
WTI Oil ($/bl)$70
Gold ($/oz)$1,795

The Week Ahead

  • Consumer Inflation (CPI)
  • Retail Sales
  • Industrial Production
  • Empire State Mfg.
  • Philly Fed Mfg.
  • Consumer Sentiment

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