Taper Time?

Weekly Market Update | August 23, 2021


Globally, stocks finished the week lower with the MSCI All Country World Index dropping 1.8%. In the U.S., the S&P 500 slipped 0.6% while the Dow Jones Industrial Average dipped 1.1%. Emerging markets plunged 4.6% as Chinese shares sank 7.8%. The 10-year U.S. Treasury yield was little changed – falling just 2 basis points.

The Federal Reserve will hold its Jackson Hole policy retreat virtually later this week. Investors will be looking for clues on the Fed’s timeline for tapering its $120 billion a month asset purchase program ($80 billion in U.S. Treasuries and $40 billion of mortgage-backed securities). We cannot rule out a tapering announcement later this week, but the fact that it is being held virtually may signal some Fed concern about the Delta variant. An announcement is widely expected before the end of 2021.

Citi’s U.S. economic surprise index has fallen into negative territory since the start of August – implying that U.S. economic data are on balance missing consensus expectations. This does not overly concern us because we think we are seeing the early stages of a normalization in economic data as the economic recovery matures into a more mid-cycle phase. Growth was always expected to moderate after the initial reopening surge.