Market volatility picked up last week as another concern added to an already-long list of investor concerns. The sizeable Chinese property developer Evergrande was added to the list, which includes inflation worries, Fed tapering of asset purchases, debt ceiling, and growth slowdowns, to mention a few. On Monday intraday, the S&P 500 was down 5% but recovered during the week to finish with a gain of 0.50%. The TSX gained 0.86% on the week, the Nasdaq was flat, gaining 0.02%, the S&P400 Midcap index added 0.79%, and the Russell 2000 ended the week 0.50% higher. In Europe, major equity indices rose, topped by Italy’s FTSE MIB index gaining 1.01% and the UK’s FTSE 100 advancing 1.26%. In the US, energy was the winning sector of the S&P 500, which also helped propel the TSX.
Later in the week, the continuing saga of the Chinese property developer Evergrande enjoyed some relief later with its domestic bond payment settlement. Resolution of the dollar-denominated interest payment remains, but non-Chinese direct exposure to Evergrande debt does not appear of size to threaten the financial stability of the global banking system.
The two-day strategy meeting of the Fed concluded on Wednesday with a notice that an announcement about tapering the bond-buying program could come as soon as the next Fed strategy session in early November. Over the summer, the Fed signaled a gradual tapering of the purchases as the economy recovers. Based on the economic indicators and employment, the economic recovery continues to strengthen. By mentioning the tapering intention well in advance, the Fed hopes the market response will not repeat the “taper tantrum” of 2013, which spooked the markets. The Fed also updated interest rate projections for three rate hikes in 2023 and three in 2024. However, the Fed’s dot plot suggests rate hike could occur as early as late 2022.1
In other economic news, the existing home sales dropped to an annual rate of 5.88 million in August from 6.0 million in July. Inventories at the end of August were down 1.5% for the end of July and 13.4% from a year ago. Buyers are becoming more cautious with pending homes sales slowing over the last two months, partly influenced by surging home prices and low inventories.2 The initial unemployment claims jumped to 351,000, increasing 16,000 from the revised previous week attributed to California catching up on a backlog of claims. Continuing claims fell 856,440 to 11,250,287 of the prior week.3 As benefits expire, it is expected the unemployed will return to the workforce. With labor shortages at record highs, there are opportunities for employment rarely seen in our lifetime.4 The HIS Market’s US services index fell slightly by 1.1 points to 54.4 points in September, a 14-month low. (A reading over 50 signifies growth). The delta variant hit the services sectors as consumers have become more reticent in attending public gatherings. The manufacturing index also slid to 60.5 from 61.1 as problems persist with supplies and higher labor costs.5
This weekend, Speaker Nancy Pelosi scheduled three contentious votes for the House to pass, a Continuing Resolution, Build Back Better Act, and the BIF (Bipartisan Infrastructure Framework). In addition, the debt ceiling extension needs to be addressed by September 30. Market reactions to the political haggling and dysfunction coupled with economic worries could spell difficulties as we move into October, which is historically volatile.
Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.
Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors primarily through fee-based accounts.
Sightline Wealth Management LP is a wholly owned subsidiary of Ninepoint Financial Group Inc. (“NFG Inc.”). NFG Inc. is also the parent company of Ninepoint Partners LP, it is an investment fund manager and advisor and exempt market dealer. By virtue of the same parent company, Sightline is affiliated with Ninepoint Partners LP. Information and/or materials contained herein is for information purposes only and does not constitute an offer to sell or solicitation to purchase securities of any issuer or any portfolio managed by Sightline Wealth Management or Ninepoint Partners, including Ninepoint managed funds.
The opinions and information contained in this article are those of Sightline Wealth Management (“Sightline”) as of the date of this article and are subject to change without notice. Sightline endeavors to ensure that the content has been compiled from sources that we believe to be reliable. The information is not meant to be used as the primary basis of investment decisions and should not be constructed as advice. Each investor should obtain independent advice before making any investment decisions.