D.C. Drama

Weekly Market Update | October 4, 2021


Stocks were weak across the board last week with almost all regions trading lower as worries about a normalization in developed market monetary policy, persistent inflation, and political drama weighed on markets. In the U.S., the S&P 500 dropped 2.2% while the NASDAQ tumbled 3.2%. Non-U.S. markets stumbled as well with European stocks pulling back 3.0% and Japanese stocks dropping 5.2% after several weeks of strong gains in early September. The 10-year U.S. Treasury yield finished the week largely unchanged – climbing from 1.45% to 1.46%.

The D.C. drama continues. While Congress acted to avert a government shutdown much work remains to be done. Democrats will work hurriedly this week to set up a partisan vote to raise the debt ceiling with President Biden lobbying Republicans to not interfere. The vote for the two infrastructure bills has now been delayed until October 31. History heavily suggests that a deal on each can be reached, but the window to the raise the debt ceiling is narrowing and tail risks are rising.

The September employment report will likely give the Fed the green light to move forward with a tapering announcement at its November 2-3 meeting. Third quarter 2021 earnings season will also take center stage as investors digest what the new path of earnings growth might look like as the economy continues to normalize.