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  • Scott Poore, AIF, AWMA, APMA

Market Shift Ahead?

  • Bond yields are rising in light of Fed Tapering to begin soon.

  • Financials and Cyclicals could be in play with market rotation.

  • Rising energy prices adding to inflationary pressures.

Markets are a little on edge as we near the close of September. The S&P 500 Index is down 1.5% for the month, living up to the historical trend of September being one of the more volatile months of the trading year. On top of tapering jitters, China's Evergrande made waves last week with default fears. We also see a rotation beginning again from high-growth momentum names to cyclical names. Last week, the FAANG stocks were down nearly half a percentage point, with Facebook & Amazon down more than 1% each. If the yield on the 10-year Treasury continues to climb in anticipation of tapering, we could see a greater shift out of Technology and into Financials / Cyclicals.

The economic data was mixed last week. Manufacturing data, according to the flash Markit index and the Kansas City Fed index, was a little soft, but still indicating expansion. Jobless Claims and Continued Claims were off. These two metrics will be very important to watch as the Fed has called for tapering in light of "continued progress" on the labor front. Housing data rebounded in August. Existing and New Home sales were better last month and Building Permits were higher. This week, we'll get key consumer data, which is critical heading into the build-up for the retail holiday season. One thing that will be interesting, with shipping delays and product shortages, how many consumers chase too few goods (i.e., inflationary).

Energy prices are moving higher as several countries are forecasting limited supplies as we head into the winter months. Natural Gas prices have increased 23% over the last month. Oil prices have inched higher by 3% over the last 30 days. The Fed's handle on "transitory" inflation seems a bit questionable in light of the move higher in most commodities.

Fears that COVID could derail future economic growth are coming to a conclusion. The positive test rate has dropped from 11.3% to 7.5% in just over 30 days. Hospitalizations are down, as well, dropping 11% since peaking three weeks ago. Goldman Sachs has estimated that 80% of the U.S. population has immunity from COVID, either through vaccination or prior infection. This should allow the economy safe passage from future stings due to COVID.


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