Note: This market review was published on November 2nd, 2021 and may not be reflective of current market or investing issues.
The third quarter was an eventful one in the US, although the S&P 500 only ended up gaining 0.11%1. Markets started the quarter strong, before giving back almost all of their gains during the month of September where they had a drawdown of nearly 4%1. There was a lot going on that lead to the drawdown, but one of the biggest issues was the federal governments budget negotiations.
The federal government has a fiscal year that runs from October 1st to September 30th every year. This year Republicans and Democrats were clashing over the annual spending bill and passed the October 1 deadline to fund the government. While this is not the first time that this has happened and there has been a government shutdown, this time there was a real threat that the government was going to miss a payment on their debt, resulting in the United States government defaulting on what is considered to be one of the safest investments in the world.
In addition to fiscal spending issues, COVID and the Delta variant made a huge resurgence in the late summer with cases in the United States peaking around the first week of September and deaths peaking around two weeks later2. While most of the country was able to avoid severe restrictions and lockdowns, they did come back in some areas which put pressure on economic growth.
The hot topic in the world of finance right now is inflation. From gas stations to grocery stores, costs are increasing at a faster pace than they have since the Great Recession over a decade ago. The Consumer Price Index rose at an annual rate of more than 5% in September3. While inflation has been increasing for most of the year, the Federal Reserve has continuously downplayed the effects that it will have and labeled it as “transitory.” However, they have now come to admit that it is persisting longer than they expected due to labor shortages and supply chain issues.
As we look toward the end of 2021, which we cannot believe is only two months away, there are plenty of things to keep our eye on concerning our investments. First, the federal government seems to be nearing a compromise on another large spending bill which is currently priced at around $1.75 trillion in addition to another $1 trillion infrastructure bill that has already been passed by the Senate, the spending bill will need to be passed before the end of the year to avoid another government shutdown and potential default. Next, inflation is likely to remain elevated into the near future as the labor shortage and supply chain issues show no sign of being corrected as we enter the holiday shopping season. Finally, the latest wave of COVID cases is in decline and vaccinations continue to rise, if these trends are to continue, they should be supportive of further economic growth.
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