DE | Sinai Economic and Market Perspectives | Lots of Uncertainties—Fed Uncertainty Settled – 10/18/21

Posted October 16, 2021 by rvillareal

[private]

[/private]

Lots of Uncertainties—Fed Uncertainty Settled; Economy Picking Up; Inflation not Transitory; Debt Ceiling Lifted but Not Lifted; Govt. Outlays Settled Only Until Dec 3; No FY22 Budget; Now Earnings
Allen Sinai 

After eight consecutive months of gains and stellar performance, September saw a Lull or Mild Correction (down 5% to 10% from previous highs) in the stock market and lots and lots of volatility.  After a raft of good news for months, there emerged a daunting list of uncertainties.

On September 2, the S&P 500 hit a new high of 4537, up near 21% for the year.  Then, with lots of ups-and-downs, the equity market fell 5.1% (as of September 30).  5% is considered by Decision Economics, Inc. (DE) to be a Mild Correction.  Currently, the S&P500 is down 1.4% from its high and in October, up 3.7%—a six-week period of sideways to slightly down.

Is this a Lull, a Mild Correction, Correction about to end, or Something Else in what has been an incredibly strong Equity Bull Market?  Or, nothing but the ups-and-downs, consolidations and Corrections that occur in earlier stages of business Recoveries and Expansions, now just waiting for uncertainties to clarify and then to move on and up?

The uncertainties and unresolved issues for the financial markets have been numerous—and not just the economy, inflation, and earnings.

There is also “Washington Dysfunction” and an unsettled Federal Government budget, the byproducts of which can affect the economy, earnings, and the interest rates that are fundamental to the equity market.  Very fundamentalare company earnings, now rolling out and possibly to take awhile to clarify whether the stellar strength seen before is continuing and how much earnings growth is diminishing.

How these Uncertainties settle out probably will determine how the equity and fixed income markets do for the rest of the year and beyond.

(Continued…)