Here’s the weekly rundown
Weekly Summary:
Well, chalk that month up…September is out, and it left all three major indexes lower than we started. The S&P 500 was down 4.8%, the Dow was down 4.3%, and the Nasdaq was down 5.3% making September the biggest pullback in the overall market since March of 2020.
Looking at the bright side though, September might have been a bit rough, but it marks the end of Q3 in which none of this year’s 17% gain for the S&P was given up! That’s a win, and I’d say 17% YTD is pretty good for just tagging along ?.
On to this week where the main headline could’ve been “confirmation of the already known”. Why’s that? Because Wednesday Fed Chairmen Jerome Powell, when speaking to lawmakers in Washington, came to the point that inflation is a lot less “transitory” and a lot more persistent than he had initially anticipated.
Cue the mid-week rally in 10-Year Treasuries resulting in a hammering for tech valuations (think Nasdaq drop).
Yet, what’s more insightful is why the Fed Chair says inflation is sticking around longer than an unwelcome guest at a backyard cookout. Supply chain bottlenecks, which he says are getting marginally worse.
Take a look at Natural Gas, for example, this week natural gas ran up and touched $6 which is nearly 3x higher than this time last year (wait until you get your winter heating bill). Why is natural gas so high? It’s not a production problem. The problem is that there’s not enough pipeline capacity for the current demand pushing prices higher for the available supply!
Let’s expand this a bit further to other industries, say housing. It was reported this week that housing values were up 20% year over year. That’s a great thing, right? Actually, no. This is one side of a double edge sword.
On the one hand, it means demand is incredibly strong for housing, allowing homebuilders to push prices higher (that’s good ?). The other hand though, is that all homebuilders see higher prices meaning they’re building flat out and surging the demand for raw inputs pushing cost higher (that’s bad ?).
Like the pipeline problem, currently, raw goods that travel via trick face a shortage of truck drivers to transport them adding to supply shortages.
If none of that hits home, look up restaurants in your local area on google. Now see how many are closed on Monday. Probably at least a few since labor is increasingly harder and more expensive to come by (adds to inflation).
Okay, so how does all of this come back to Powell and the stock market?
J. Powell has been holding off on increasing interest rates (destring demand) because he wants to help all Americans find a job after the pandemic. This is an admirable thing. However, by holding off on raising rates demand for goods is soaring and there aren’t enough people working to make everything.
This is putting pressure on companies’ earnings and is also why it will be difficult for the market to move meaningfully higher through the end of the year.
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