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The major indexes retreated over the Labor Day-shortened trading week. The small real estate sector led the declines in the S&P 500 Index, as longer-term interest rates increased. Meanwhile, consumer staples and utilities stocks held up best. The small-cap Russell 2000 Index declined after two consecutive weeks of outperforming the large-cap benchmarks, and value stocks trailed growth shares. Although volatility increased, trading volumes remained somewhat subdued.
Several factors weighed on sentiment – one of the emotional components of market movement – including September’s reputation for being a weak month for stocks. The August payrolls “miss” seemed to linger in the minds of investors and exacerbate worries that the Delta variant of the coronavirus was slowing the economic rebound. On Thursday afternoon, President Biden announced that all large employers must require workers to either be vaccinated or submit to weekly testing. Additionally, Biden insinuated that vaccination would become mandatory for federal workers and contractors…with a notable exception of Congress.
The potential for political gridlock is also creating some market worries. On Wednesday, the website Axios reported that Democratic Senator Joe Manchin may only support about $1 trillion of Biden’s $3.5 trillion spending plan, highlighting the wide gap between moderates and progressives. Manchin’s vote will be critical in passing the legislation in the evenly divided U.S. Senate (with Vice President Kamala Harris able to break the deadlock). Of course, wherever this plan lands, the effect on small business will likely be an increase of “rendering to Caesar those things that are Caesar’s” (Mark 12:17). The potential tax ramifications surrounding paying for the spending plan will loom large heading into the fourth quarter. Meanwhile, Treasury Secretary Janet Yellen said that extraordinary measures to avoid breaking the congressionally mandated federal debt ceiling were likely to be exhausted in October and reiterated her plea for legislators to take action.
Finally, inflation worries persist. On Friday, stocks appeared to slip after the Labor Department reported that producer prices rose 0.7% in August, a slowdown from July’s 1.0% gain, but above consensus expectations for a 0.6% increase. The tight labor market signaled further profit margin challenges for firms. According to the Job Openings and Labor Turnover Survey (JOLTS) data released Wednesday, there were a record 10.93 million positions waiting to be filled in July, almost 1 million more than consensus estimates. Weekly jobless claims also fell more than forecast to a new pandemic-era low of 310,000.
The market, as we’ve discussed, is typically a lead indicator of our nation’s economic health. Although sentiment in various areas continues to be mixed (a veritable emotional “roller coaster,” at times), the market appears to be willing to give Biden and the Federal Reserve an opportunity to keep the ball rolling. Our team is preparing to rebalance many of our portfolios, in order to harvest some of the recent profit, while also remaining poised for opportunity (and threats) to the market heading into 2022.
Sources: Yahoo Finance, Reuters.com, and JP Morgan Market Insights
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