Higher for Longer

Weekly Market Update | November 8, 2021

Highlights

Global equities (as measured by the MSCI AC World index) gained 1.6% last week – hitting an all-time high. In the U.S., the S&P 500 jumped 2.0% while the NASDAQ surged by 3.1% as interest rates fell. Non-U.S. markets also performed well with European stocks gaining 1.5% as the Bank of England held off on raising rates. Emerging Market stocks were largely unchanged. The 10-year U.S. Treasury yield fell from 1.55% to 1.45% by the end of the week.

As expected, the Federal Reserve decided to begin tapering the pace of its bond purchases by $15 billion a month. Importantly, the Fed kept the door open to adjusting the pace beyond December. Presumably, the Fed could accelerate the pace of reductions should inflation remain more persistent than hoped for. While inflation may indeed remain “higher for longer,” we still agree with the Fed that inflation should moderate in 2022 as supply bottlenecks eventually ease and the fiscal policy-induced consumer demand of 2020 continues to normalize.

The U.S. economy added 531, 000 jobs in October and the unemployment rate fell from 4.8% to 4.6%. If this pace of gains can be sustained, U.S. employment level would be back to its pre-pandemic level by about June 2022. This conveniently aligns with when the Fed is expected to end its bond purchase program and when the market thinks the Fed may start to hike rates.