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September Economic Update

Market Summary

In August, the stock market looked past the headwinds of the Delta variant and focused on strong earnings reports for the second quarter. Corporate profits were exceptional, with 89% of S&P 500 companies exceeding Wall Street estimates by an average of 17.7%. By the end of the month, the major market indices posted respectable gains with the Dow Jones adding 1.22%, the S&P 500 rising 2.90%, and the Nasdaq increasing 4%. (1,2)

Economic News

While strong corporate earnings elevated stock prices, the month was not without its worries. The global spread of the Delta variant resulted in flashes of investor anxiety that led to temporary pullbacks in stock prices. New COVID-19 cases in the U.S. rose throughout August and are raising concerns that new infections could derail the economic recovery. In Asia, outbreaks closed some shipping ports. Vietnam partially halted manufacturing, and Japan extended its lockdown protocols. These actions raised concerns about their supply chain impact and what it may mean for inflation and economic growth.

On August 13th, the University of Michigan Consumer Sentiment report was released, which is a measure of consumer confidence to spend into the economy. While the Wall Street consensus was expecting a respectable reading of 81.2, the number was a surprise to the downside at 70.2, which is the lowest reported since December 2011. Economists point to the rise of COVID cases, as well as inflationary pressure, with consumer prices rising 5.4% year-over-year - the fastest rate since 2008. (3,4)

Federal Reserve & Job Growth

Since shortly after the pandemic began in early 2020, the Federal Reserve has been purchasing U.S. Treasury and corporate bonds, as well as mortgage-backed securities to augment the economic recovery by supporting the financial and real estate markets. On August 27, Federal Reserve Chair, Jerome Powell stated the Fed was considering scaling back these purchases toward the end of this year, but any decision would be dependent upon continued economic recovery and employment strength in light of the spread of the Delta variant. (5)

One week after this announcement, the U.S. Bureau of Labor Statistics announced on September 3rd that 235,000 new jobs were added for the month of August. While any job growth is positive, this was considerably less than the 750,000 new jobs economists were forecasting for last month. This shortfall with is mostly attributed to the rise of the Delta variant and slowing economic growth as a result. (6)