Week in Review: September 17, 2021

Markets ended the week lower, with the S&P 500 dropping to its lowest level in a month, despite any clear catalysts. For much of the year, markets have been propelled upwards by accelerating economic and corporate earnings growth. With both factors having likely peaked in the second quarter and expected to moderate moving forward, markets now appear to be searching for a catalyst to sustain their recent upward trajectory. In lieu of a catalyst, markets may prove to be more volatile in the near-term.

Tax policy garnered some attention as Democrats revealed details related to their proposed $3.5T infrastructure bill. To help offset the cost, Democrats are proposing multiple tax increases including raising the corporate tax rate from 21% to 26.5%, raising the minimum tax on U.S. companies’ foreign income from 10.5% to 16.5%, increasing the top tax rate for individuals making $400K/year, or couples making $450K/year from 37% to 39.6%, and increasing the capital gains tax rate from 20% to 25%. However, given the narrow Democratic majorities in Congress and competing views on the size and scope of the legislation, the final version of the bill remains uncertain.

Concerns surrounding China’s property sector intensified as Evergrande, the country’s second largest property developer by sales, teeters on the brink of collapse, saddled with $300B in debt. Hurt by slowing property sales and new rules implemented in 2020 that capped leverage, some have described Evergrande’s potential collapse as China’s “Lehman” moment and the most important test of the country’s financial system since the Great Recession.