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Week in Review: September 17, 2021

Recap & Commentary

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.

Economic Bullet Points

Consumer prices moderated in August, adding to the belief that the recent surge in inflation may have peaked. Headline inflation rose 0.3%, less than the forecasted 0.4%, and down from July’s 0.5% increase. Excluding food and energy prices, core CPI rose just 0.1%, its smallest increase since February. Compared to a year ago, headline and core CPI rose 5.3% and 4.0%, respectively, down from 5.4% and 4.3% in July.

In a separate report that seemed to corroborate slowing prices, import prices for goods and services fell 0.3% in August, the first decline in 10 months, while export prices rose 0.4%, the smallest increase since Oct. 2020.

Defying expectations, retail sales rose 0.7%. Consensus expectations, now doubt influenced by recent disappointing readings on consumer confidence, called for a 0.8% decline. Core sales, excluding gas and autos, rose 1.8%.

Manufacturing data out of New York and the Philadelphia area exceeded expectations. While the drivers of  improvement were different, manufacturers in both regions saw input prices decline, albeit slightly.

Consumer sentiment rose slightly in September but remained near its lowest level in a decade. Buying attitudes for household durables fell to their lowest level since 1980, due in part to higher prices.

Of Note

Natural gas prices rose to their highest level since February 2014 thanks to strong export demand and limited supply as nearly half of the Gulf of Mexico’s production remains offline following Hurricane Ida.

S&P 500-0.6%
Small Caps0.4%
Intl. Developed-1.4%
Intl. Emerging-2.3%
Commodities0.5%
U.S. Bond Market0.0%
10-Year Treas. Yield1.37%
US Dollar0.7%
WTI Oil ($/bl)$72
Gold ($/oz)$1,751

The Week Ahead

  • Housing Starts
  • Existing Home Sales
  • New Home Sales
  • Markit PMI
  • Weekly Jobless Claims

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