Stock Market Updates

September 2021

Stocks

It was a rough month for equities, there were continued inflation fears and supply chain issues that weighed on stocks. This resulted in a huge pull back: The Dow declined by 4.2%, the S&P 500 was down by 4.6% and Nasdaq trended lower, down about 5% for the month.

Evergrande

China’s second largest property developer, Evergrande, has debts of about $300 billion it owes stakeholders, and it’s faced with a potential default if the company can’t find cash to pay down its debt obligations. As a result of this news, the company’s stock is down more than 80% this year.

Beijing is not too keen to bail out the country’s most indebted property developer, but the People’s Bank of China has pushed $71 billion into the banking system to help with liquidity in response to the Evergrande catastrophe. People have been wondering if Evergrande’s potential collapse could mirror that of Lehman Brothers during the Great Recession, but experts are saying this is not a likely scenario and that there is little correlation between Evergrande and Lehman.

 The Fed

The Federal Reserve indicated it could start tightening monetary policy, which could lead to an eventual rise in interest rates, however, as of now there are no changes to monetary policy. The Fed continues to purchase $120 billion worth of bonds on a monthly basis.

Debt Ceiling

Treasury Secretary Janet Yellen raised the alarm to Congress over the need to increase the debt ceiling or else the U.S. could default on its debt in which case the government would have to cut spending on programs like social security, medicare benefits, tax refunds and others.

There is contention in Congress where Republicans are opposing to raise the debt ceiling. The House passed a $3.5 trillion spending bill that suspends the debt ceiling but this is expected to be thrown out in the Senate. The GOP is saying Democrats must find a way to raise the debt ceiling on their own. 

Failing to raise the debt ceiling could mean serious consequences for the stock market and broader U.S. economy. 

August 2021

In August, the stock market, yet again, hit all time highs.

The Dow Jones Industrial Average ended the month up 1.2%, the S&P 500 up 2.9% and the Nasdaq up almost 4%.

Concerns of increasing COVID-19 cases along with worries spreading about the rise of the Delta variant are top of mind for investors.

The highlight of the month was the takeaway of the Jackson Hole Symposium, an annual meeting hosted by the Federal Reserve to discuss economic issues. But investors had their ears perked for any possible updates to monetary policy. Fed Chair Jerome Powell said that tapering of asset purchases could take place by the end of the year, suggesting that the central bank may not be as accommodative in the future. Although, he also mentioned, interest rate increases are not in the cards for the foreseeable future.

The consumer price index (CPI) also known as the inflation reading rose 5.4% in July on an annual basis, according to the U.S. Department of Labor, making a dent in consumers' pockets. The monthly read on inflation was due to price increases in shelter, food, energy and new vehicles. Core inflation, the Fed's preferred reading on inflation which removes food and energy, rose 0.3% in July and up 4.3% year over year.

S&P 500 companies set records in their second quarter earnings results. According to FactSet, of the 91% of companies that reported earnings, 87% locked in revenues above the mean revenue estimate. Many S&P 500 companies also beat EPS estimates for the second quarter, resulting in the index reporting its highest year over year growth in earnings since Q4 2009, according to reports from FactSet.

Sector performance for August showed financials to be the best performing sector, followed by communications, utilities and technology, while energy lagged.

August had a disappointing jobs reading, only adding 235,000 jobs for the month compared to 720,000 expected, raising concerns over the pace of recovery. The Fed is also keeping a close eye on employment as it decides the next move in monetary policy. U.S. unemployment fell to 5.2% from 5.4%

Bitcoin moved higher, with the cryptocurrency's price increasing 13% in August rising to $50,000. Gold, after falling earlier in the month, the previous metal recovered hitting a high of about $1,800 and ending the month up 0.03% as it continues to move sideways.