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Week in Review: September 25, 2021

Recap & Commentary

US equity markets ended the week higher, as concerns about Chinese property developer Evergrande subsided. The Evergrande outcome was far from certain on Monday when the S&P 500 fell by as much as 2.9% intraday, before ending down 1.7%, its worst decline since May. Market sentiment was aided by an infusion of $71B of liquidity into the markets over the course of the week by China’s central bank, helping assuage concerns about broader contagion.

As expected, the U.S. Federal Reserve maintained current monetary policy at its September meeting and did not make any official announcement about tapering. However, speaking afterwards, Federal Reserve Chair Jerome Powell signaled that the central bank is very close to beginning tapering, leaving little doubt that the Fed will formally announce its plans at its November meeting. Powell indicated that the inflation test to begin tapering has been met and that the employment test is close to satisfied. Powell noted that he personally believes the employment test has been “all but met” and that he would only need to see a “reasonably good” September employment report to be comfortable to start tapering. When the Fed embarks on tapering, Powell expects it to conclude by mid-2022. Addressing inflation, Powell said he expects it to remain elevated in the coming months before moderating, while acknowledging that current price pressures have been “larger than expected.” Powell’s more hawkish commentary helped drive the 10-Year Treasury yield to 1.45%, its highest level since early July.

Economic Bullet Points

The housing market dominated economic headlines as August data for housing starts, permits, and new and existing home sales were reported. Overall, the sector appeared to see an uptick during the month. New home sales rose 2.9% to an annualized rate of 1.62M, better than the consensus estimate of 1.55M. Compared to a year ago, sales increased 17%, but remain 6% below their recent peak set in February. Building permits, an indicator of future activity, rose 6% in August, better than forecasted.

Sales data was mixed.  New home sales rose 1.5% from July, but declined 24% from a year ago. While peak demand may have passed, continued strong demand coupled with builders’ ongoing challenges to source materials and labor helped push the median price up 20% to $390K. Somewhat counterintuitively, inventory rose to its highest level since 2008. However, 28% of the inventory was homes that have yet to be built, a new record.

Existing home sales fell 2% effectively matching the consensus estimate. Compared to a year ago, sales increased 16%. Supply remains tight as inventory fell 13% from a year ago. Houses are currently on the market for just 17 days.

According to industry group Markit, manufacturing and services sector activity decelerated slightly in September, pressured by supply chain problems and the Delta variant, but remained at levels indicative of solid economic growth.

Of Note

In Europe, record high natural gas prices have forced some UK fertilizer companies to shut down plants, leading to a shortage of carbon dioxide, a byproduct of fertilizer production. CO2 is widely used in the food industry, from the slaughter of animals to the production of carbonated beverages.

S&P 5000.5%
Small Caps0.5%
Intl. Developed-0.3%
Intl. Emerging-1.1%
Commodities1.5%
U.S. Bond Market-0.4%
10-Year Treas. Yield1.45%
US Dollar0.1%
WTI Oil ($/bl)$74
Gold ($/oz)$1,746

The Week Ahead

  • Durable Goods Orders
  • Consumer Confidence
  • Pending Home Sales
  • PCE Inflation
  • ISM Manufacturing
  • Personal Spending & Income
  • Weekly Jobless Claims

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