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Commentary provided by Mark Szycher, Vice President, Investment Specialist, AIG Retirement Services

Market Performance Snapshot* (Week ending September 10, 2021 and Year-to-Date) 

  • Dow Jones Industrial Average®:  -2.2% | +13.1%
  • S&P 500® Index:  -1.7% | +18.7%
  • NASDAQ Composite® Index:   -1.6% | +17.3%
  • Russell 2000® Index:  -2.8% | +12.8%
  • 10-year U.S. Treasury note yield: 1.34%
    - Up 1 basis point from 1.33% on September 3, 2021
    - Up 42 basis points from 0.92% on December 31, 2020
  • Best-performing S&P 500 sector this week: Consumer Discretionary, -0.3%
  • Weakest-performing S&P 500 sector this week: Real Estate, -3.9%

    *Past performance is not a guarantee of future results.

Virus concerns weigh on equities

Stocks sputtered out of the Labor Day holiday amid concerns about the virus’s potential dampening effect on economic growth. All major indices declined for the week and all 11 S&P sectors were negative. The 10-year Treasury yield held roughly steady, even as new producer price data indicated inflation remains elevated.

  • The Delta variant is leading more market participants to reassess future U.S. economic performance. Several Wall Street banks and private forecasters have reduced their U.S. GDP projections for 2021 and 2022, though growth is still expected to be quite strong by historical standards.
  • Several major airlines trimmed their financial projections for the quarter as the Delta variant has reduced travel demand; however, the companies also said the economic impact of the current virus surge appears to be less dramatic than previous spikes and bookings are stabilizing.
  • Recent employment data have been mixed. Equity markets viewed the underwhelming August payroll report (235,000 new jobs vs. 720,000 expected) as evidence that Delta is taking a toll on economic growth. However, the latest Job Openings and Labor Turnover Survey revealed a record-high 10.9 million job openings at the end of July, an increase of 750,000 from the prior month and well above the 8.4 million people identified as job seekers.
  • Weekly initial jobless claims fell to 310,000, another pandemic-era low, and lower than the forecast of 335,000.
  • Employers continue to raise wages to attract workers. The August payroll report measured annual wage gains of 4.3% overall, including 10.3% in the leisure and hospitality sector. Rising wages are feeding into inflation, albeit the majority of gains have been experienced in lower wage tiers. The August Consumer Price Index will be released September 14.
  • August’s Producer Price Index (PPI), a measure of the selling prices producers receive for their products and services, rose 8.3% year-over-year, the steepest 12-month increase since that figure was first calculated in 2010. The monthly rise was 0.7%, lower than July’s monthly increase but higher than the 0.6% expected. Ongoing supply chain challenges are boosting producer prices globally, with China’s PPI clocking in at 9.5% year-over-year in August, the biggest surge since 2008.
  • President Biden announced the U.S. Department of Labor will require companies with more than 100 employees to mandate employee vaccinations or weekly Covid tests, or be fined for noncompliance — part of a larger Administration effort to increase vaccination rates.
  • In a letter to Congressional leaders, Treasury Secretary Janet Yellen said her department could run out of options by October for paying the government’s bills if the debt limit is not raised or suspended by then. She warned that “waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States.”
  • The European Central Bank (ECB) announced that it will slightly slow the pace of asset purchases under its special pandemic emergency purchase program, expected to run through Q1 2022. The move follows August’s decade-high inflation reading for the Eurozone. ECB President Christine Lagarde said the bank is not tapering, but “recalibrating” policy. The ECB made no other changes to its asset purchase or interest rate policies.

Fed Beige Book sheds light on economic conditions across the U.S.

The Federal Reserve’s latest Beige Book, a summary of U.S. economic conditions based on qualitative data from the Fed’s 12 regional districts, finds Delta affecting the economy as supply chain and labor challenges linger — validating several of the business and investing community’s broad concerns.

  • According to the Beige Book, “Economic growth downshifted slightly to a moderate pace in early July through August… The deceleration in economic activity was largely attributable to a pullback in dining out, travel, and tourism in most Districts, reflecting safety concerns due to the rise of the Delta variant.”
  • Labor shortages are challenging businesses while pushing up wages: “All Districts noted extensive labor shortages that were constraining employment and, in many cases, impeding business activity… With persistent and extensive labor shortages, a number of Districts reported an acceleration in wages, and most characterized wage growth as strong… Several Districts noted particularly brisk wage gains among lower-wage workers.”
  • Supply chain challenges are also affecting businesses and pushing up prices: “With pervasive resource shortages, input price pressures continued to be widespread… Even at greatly increased prices, many businesses reported having trouble sourcing key inputs. Some Districts reported that businesses are finding it easier to pass along more cost increases through higher prices. Several Districts indicated that businesses anticipate significant hikes in their selling prices in the months ahead.”

Final thoughts for investors

After a strong summer, markets are grappling with an economic outlook clouded by virus concerns. While the U.S. is still expected to exhibit robust growth in 2021, the pace of growth may be slipping. With labor and supply shortages leading to wage and price increases, companies and consumers may face significant headwinds the rest of this year. As uncertainty and volatility are likely to continue, speak with a financial professional about staying focused on your long-term goals.

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