Pressure Builds

Weekly Market Update | September 20, 2021

Highlights

Globally, stocks fell for a second straight week with the MSCI All Country World Index falling another 1.0%. In the U.S., the S&P 500 slipped 0.6% while the Dow Jones Industrial Average fell just 0.1%. Shares in Japan outperformed slightly – rising 0.3%. The 10-year U.S. Treasury yield was little changed – rising just 2 basis points to 1.36%.

Market pressures appear to be building with news of a major property developer in China nearing default serving as the latest negative catalyst. However, it is too early to judge whether this is a lasting story with government intervention in coming days possible. Beyond China, pressure is building in the U.S. with political risks likely to rise as we approach month-end.

We do not think that the upcoming political fireworks around the infrastructure bills, funding of the federal government, or raising the debt ceiling will cause lasting problems. The base case appears that a trimmed down infrastructure bill will eventually be passed via the budget reconciliation process and that the debt ceiling will be lifted as Congressional leaders of both parties have always recognized that it is critical to service the country’s legal obligations. We are also encouraged by early September economic data that seem to suggest a modest rebound in economic activity. Though we do not think the better data will be enough to tip the Fed towards a September taper announcement this Wednesday.