The Bottom Line
● Domestic and International equity markets had a volatile week as traders digested mixed economic news and U.S. Fed officials entered a speaking black out period leading up to the FOMC meeting next week.
● Treasury yields were also volatile for the week with auctions seeing strong demand, the 10-year was up 2bps and the 2-year rose 1bps.
● Mixed economic news painted a murky picture for the week, Small Business Optimism unexpectedly shot up and inflation, as measured by the CPI, came in softer than expected, but jobless claims missed their mark.
Has Volatility Returned?
U.S. and European markets spent most of the week in the red. Friday saw most of the selling action, but this was partially due to what’s called the “Triple Witching”, which occurs once a quarter when stock option, stock index futures, and stock index option contracts all expire on the same day. Volatility seems to be the new normal for the month of September with the VIX (an index used to measure volatility on the S&P 500) climbing over +26% since the start of September. The STOXX Europe 600 was down -0.96% as the German federal elections draw nearer. The S&P 500 was down -0.57% for the week as market participants shifted their focus to next week’s FOMC meeting. Traders will be closely monitoring the language used in the press conference following the meeting. With conflicting economic datapoints emerging over the past several weeks, traders are looking for any clues as to when the Fed will begin tapering its asset purchase programs. Most base case assumptions are that an announcement will be made in November, however this could be delayed if Congress can’t come to an accord on the U.S. government debt ceiling. While most U.S. and European markets were dismal for the week, Japanese equities and the Russell were able to eek out a modest gain of +0.39% and+0.42% respectively for the week.
Digits & Did You Knows
TWENTY YEARS AGO — The US stock market did not open at its regular time of 9:30am ET on Tuesday 9/11/01, shutting down after the first plane hit the North Tower of the World Trade Center at 8:46am ET and the second plane hit the South Tower at 9:03am ET. When the market did reopen on Monday 9/17/21, the S&P 500 fell 4.9% (total return) for the day.(source: BTN Research).
TAXES – Congress will debate 3 major tax hikes designed to offset the cost of the proposed $3.5 trillion social infrastructure bill: 1) a corporate income tax increase (to raise $1 trillion over 10 years), 2) a corporate tax on overseas income (to raise $550 billion), and 3) a higher capital gains tax (to raise $322 billion).(source: CNBC, BTN Research).
Source: Bloomberg. Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange‐traded funds recommended by the Prime Capital Investment Advisors. The performance of those funds may be substantially different than the performance of the broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High‐YieldBond(iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 ValueETF);MidGrowth(iSharesRussell Mid‐CapGrowthETF);MidValue (iSharesRussell Mid‐Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares U.S. Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by: 30% U.S. Bonds, 5% International Bonds, 5% High Yield Bonds, 10% Large Growth, 10% Large Value, 4% Mid Growth, 4%Mid Value, 2% Small Growth, 2% Small Value, 18% International Stock, 7% Emerging Markets, 3% Real Estate.
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