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

Market Performance Snapshot* (Week ending September 17, 2021 and Year-to-Date)   

  • Dow Jones Industrial Average®:  -0.1% | +13.0%
  • S&P 500® Index:  -0.6% | +18.0%
  • NASDAQ Composite® Index:   -0.5% | +16.7%
  • Russell 2000® Index:  +0.4% | +13.3%
  • 10-year U.S. Treasury note yield: 1.37%
    - Up 3 basis points from 1.34% on September 10, 2021
    - Up 45 basis points from 0.92% on December 31, 2020
  • Best-performing S&P 500 sector this week: Energy, +3.3%
  • Weakest-performing S&P 500 sector this week: Materials, -3.2%

    *Past performance is not a guarantee of future results.

Equities struggle to gain traction in September

The small-cap Russell 2000 Index managed a gain but other major indices declined during a choppy week as investors sorted through conflicting economic data. A key U.S. inflation gauge was lower than expected and retail sales figures were higher than expected in August. New data provided further evidence of economic slowdown in China, and crude oil and natural gas prices rose amid global supply challenges and higher demand forecasts.

  • The Consumer Price Index (CPI) rose 0.3% in August, a figure that was below expectations and marked the second consecutive month of decelerating price increases. Year-over-year CPI rose 5.3%, less than the 5.4% rise in June and July. Core CPI, which excludes volatile food and energy prices, was up just 0.1% for the month – the smallest increase since February.
  • Some transitory factors that drove inflation up earlier in the year experienced a reversal in August – for example, airfares fell 9.1%, hotel prices were down 3.3%, and used vehicle prices declined 1.5%. The decline in travel sector prices may have resulted from cancelation or postponement of travel due to the Delta variant.
  • Separate surveys indicated that consumer sentiment remained subdued as people expect higher inflation in the year ahead – however, a Bank of America Merrill Lynch survey of fund managers found most expect lower inflation in the next 12 months.
  • U.S. retail sales unexpectedly rose by 0.7% in August, defying expectations of a Delta-driven pullback in spending. Most categories experienced gains, though auto sales fell amid continued tight inventories. The shortage of semiconductors hasn’t eased, forcing additional slowdowns in vehicle production and consumer electronics, e.g., smartphones.
  • Initial jobless claims rose to 332,000, above the previous week’s revised 312,000 but still near pandemic-era lows.
  • Despite a dip on Friday, crude oil and natural gas prices rose for the week, sending energy stocks higher. Supply challenges in Europe have reverberated through global markets and much U.S. production in the Gulf of Mexico remains offline after Hurricane Ida. The International Energy Agency said it expects oil demand to rebound starting next month and OPEC raised its demand outlook for 2022.
  • China’s retail sales and industrial output grew more slowly in August than July, below expectations, as the country dealt with a virus resurgence. Global investors continue to keep a watchful eye on China’s moderating growth.
  • Casino-operator stocks took a hit after authorities in the Chinese region of Macau – a global gambling hub –announced increasing regulatory scrutiny of casino operations. The move was viewed as the latest example of China’s aggressive regulatory posture affecting markets.

Stimulus boosted incomes in 2020; outlook for further stimulus is unclear

The Census Bureau reported that median household income would have fallen and poverty risen in 2020 if not for government transfer payments and other benefits – further insight into how much last year’s massive fiscal stimulus impacted the economy. Markets await clues as to whether additional fiscal stimulus is in the offing and how long the Federal Reserve will maintain monetary stimulus.

  • The Federal Reserve’s policymaking committee meets September 21-22. Most observers expect the Fed will not announce a decision on tapering asset purchases, but may provide more guidance signaling a decision later this year.
  • House Democrats published details of the tax increases associated with their $3.5 trillion spending proposal, including higher taxes on corporations, capital gains, and high earners’ incomes. Higher taxes are a form of fiscal tightening and could reduce the stimulative effect of added spending. Markets didn’t exhibit a strong reaction to the proposal.
  • Though House Democrats aim to pass the $3.5 trillion legislation in late September, its path through the narrowly divided Congress remains uncertain. Meanwhile the Senate-approved infrastructure bill, which would add $550 billion in new spending, is pending in the House.
  • Companies with 100 or more employees are preparing for an upcoming OSHA ruling that would require them to mandate vaccines or administer weekly COVID tests to employees. Implementation details still need to be determined.
  • Citing lack of conclusive data, an FDA panel declined to endorse booster shots for the general population, though it did back a Pfizer booster for people 65 and over and those at high risk from COVID. Moderna and Pfizer cite a need for the boosters, and the Biden administration had set late September for commencing boosters across the adult population, but that timetable is now uncertain.

Final thoughts for investors

The surprise in retail sales figures exemplified how data can be unpredictable, especially as the U.S. and global economies are buffeted by the crosscurrents of stimulus, virus waves, supply chain struggles, and more. Speak with a financial professional about navigating uncertainty.

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