- Scott Poore, AIF, AWMA, APMA
Wait & See Mode
According to some Fed presidents, tapering could be announced later this month.
Labor market surprises on claims one week after a disappointing jobs report.
Latest COVID wave shows some signs of peaking.
Markets are trying to figure out where we go from current levels. The Fed has intentionally left themselves room to wait on Tapering and prognosticators are busy trying to figure out when that event will begin or be announced. The big question becomes will Tapering be as volatile for markets in 2021 as it was in 2013, or has the market learned to adjust and perhaps this time won't move markets as much. Time will tell, but for the meantime, we'll have to learn to be patient. The great philosopher Aristotle once famously said, "Patience is bitter, but its fruit is sweet." For those who can play the wait and see game, the rewards could be substantial. Here's what we're seeing so far this week...
What's Happening in Markets? Equity markets are down about 0.9% so far this week. There are fears over slowing global growth due to COVID (more on that later) and angst about when Tapering will begin. Last week's poor Jobs Report allowed those who want Fed stimulus to continue the opportunity to cheer. However, several Fed presidents still think it's time to begin tapering soon. St. Louis Fed president, James Bullard, dismissed the labor report of just 235,000 jobs added in August and stated, "The big picture is that the taper will get going this year and will end sometime by the first half of next year." Dallas Fed president, Robert Kaplan said on Wednesday that he supports the Fed announcing a plan to Taper at the conclusion of their next meeting on Sept 22nd. Kaplan stated the announcement should be followed by the beginning of tapering in October.
The economic releases are mild this week. Job Openings have hit a new high of 10.9 million available jobs, which exceeds the number of unemployed. Weekly Jobless Claims, coming on the heels of expired extended unemployment benefits, declined more than expected (-310k vs -335k expected). The Fed's Beige Book did point to some slowing in economic growth in certain sectors. However, Consumer Sentiment, as measured by the Thomson IPSOS poll, improved in August. This morning, August PPI numbers came in slightly higher than expected (+0.7% vs 0.6%). Some market pundits will point to a decline in the number month-over-month. However, we saw this back in May when the PPI decreased month-over-month, only to head higher the following month. There's not enough evidence yet to suggest PPI is following the Fed's transitory thesis.
Is the latest COVID wave starting to wane? Goldman Sachs recently cut their full year growth forecast for 2021 to 5.7% from 6% as they expect the Delta variant could impact consumer spending. The drop comes as the firm cut its 4th quarter growth forecast to 5.5% from 6.5%. We will have to wait to see if the folks at Goldman are correct. However, we feel there is a real possibility that COVID could be making its last "major" wave of infections. According to Johns Hopkins, as of Sept 7th, the positive test rate for COVID cases has dropped to 9.4% - a level we have not seen since July 28th. This number stands in light of the fact that more than 2.4 million people were tested on the 7th. The graph of infection rates below clearly shows a plateau and the beginning of a decent from the plateau. Reproduction rates of infections have also slowed, as most of the states that saw an increase in Delta cases back in July are seeing significant declines in cases. Since peaking approximately 3 weeks ago, cases in Florida are down 33%, in Missouri down 39%, in Louisiana down 221%, and in Mississippi, cases are down 51%. Hospitalizations, while high, have still not reached the levels of earlier this year at the peak of cases in January. There are hot spots across the country, so cases are not going down everywhere, but as a whole, the nation is seeing a decrease in cases. Lastly, while cases are high, they are currently at 60% of the highs we saw in January. Deaths, while high, currently represent only 34% of the peak reached in January. The next couple of weeks should tell us whether cases are headed lower indefinitely or if we've only seen a temporary reprieve.