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)
Looking Forward...
The aforementioned scaling back of bond purchases by the Fed is predicated upon continued economic and job growth. The August jobs report will could delay the Fed’s decision to begin tapering bond purchases, as the markets will likely need continued support in light of weakening job and economic data. However, if the Fed does not scale back on these purchases, inflationary pressures will continue to mount, impacting consumer confidence.
Over the course of this year, the stock market has been resilient in light of economic and challenges presented by the ever-changing circumstances of the pandemic. We will continually monitor the delicate balance between economic data and Federal Reserve influences and adjust our client portfolio allocations accordingly.
Monthly Financial Tip:
Never leave money on the table when it comes to your 401(k) or 403(b). If your employer offers to match contributions, strive to contribute enough so that you get the match.
Citations:
1. WSJ.com, August 31, 2021
2. Twitter.com/EarningsScout, August 26, 2021
3. Investing.com/economic-calendar/michigan-consumer-sentiment-320
4. WSJ.com, August 11, 2021
5. WSJ.com, August 27, 2021
6. Investing.com/economic-calendar/nonfarm-payrolls-227
Disclaimers:
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
