- Equities closed the day lower for the third time in a row, following Thursday's sharp rally that helped erase Monday's sell-off. Concerns around the Evergrande and property developer situation in China remain but have simmered from the boil that sparked early-week volatility. Overseas markets moved the opposite direction, with European and Asian markets lower. The bond market has been on the move as well, with 10-year Treasury yields jumping above 1.4% for the first time in more than two months, spurred by this week's Fed meeting that revealed the central bank's intentions to reduce bond purchases in the coming months.
- The market is keeping one eye on Washington as the September 30 deadline for a government spending bill approaches. Policymakers appear poised to work over the weekend to hash out details on the $3.5 trillion bill as well as a possible $1 trillion infrastructure program. The latter looks to have some bipartisan support, but we suspect spending negotiations will be contentious given the likelihood of political positioning ahead of midterm elections. There's certainly potential for a coming government shutdown if agreement can't be reached on the debt ceiling. While this is not a new issue for the market, it does raise the possibility of some near-term political anxiety for the markets. We think the debt ceiling will ultimately be raised, but some form of brinkmanship will probably play out beforehand.
- This week has seen a return of stock-market volatility after a rather tranquil 2021 to this point. September is historically one of the weakest months of the year, but we think market swings in recent days say more about a confluence of policy and macroeconomic events rather than the calendar. Worries about China's real estate and economic outlook, softer domestic economic activity driven by the delta-variant spread, prospects of reduced Fed stimulus, and political theater around the budget are all combining to add some indigestion for investors. We doubt these risks will subside immediately, but we think the economic expansion will be the more powerful (positive) influence as we progress through this year and into 2022. Despite the recent swings, equities are still holding on to strong gains for the year. We expect asset-class leadership to continue to rotate as we progress, which we think benefits well-diversified portfolios.
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