What I Care About This Week | 2021 Nov 22

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by Franklin J. Parker, CFA

The Summary

  • We have an abbreviated trading week due to Thanksgiving, and this is a light data week. Durable goods and initial jobless claims post on Wednesday, both should give insight into the pace and power of the recovery. The debt ceiling is again in the news, as Treasury Secretary Janet Yellen cautioned lawmakers that the ceiling should be raised by early December. That said, analysts wouldn’t expect Treasury to run out of cash until January. Were it me, I wouldn’t risk it, but lawmakers tend to use these moments to broker 11th-hour deals. Another push to the redline is not off the table.

  • Retail sales were strong last week, a signal that the US consumer is still in the game, despite higher prices and an end to most pandemic aid programs. This data was backed up by earnings reports from Target and Walmart—both showing strong same-store sales growth. There is concern that supply bottlenecks will throttle holiday spending in Q4, so investors should watch the developing data closely. The Atlanta Fed’s GDPNow indicator (which attempts to estimate current GDP growth from current data), got a strong boost after the announcement.

  • The Biden administration announced that they will nominate current Federal Reserve Chairman Powell for a second term as chair, despite objections from the progressive wing of the Democrat party. Markets rallied after the announcement (remember, more than almost anything markets like stable and predictable policy). Additionally, it appears ever-more likely that the Fed will accelerate the timetable for ending their ongoing money-printing program. Currently, it is scheduled to end around June, but many policymakers have indicated they are open to a quicker timeline in the face of higher-than-expected inflation.

  • It has been my general view that a correction is likely when the Fed stops printing money and markets begin to price-in interest rate hikes. Originally, the timetable for this shift was in the Summer of 2022, however recent rumblings indicate this may be more in the Spring. In any case, investors would do well to keep an eye on the data and comments from the Fed as they develop, as these are variables that have driven a significant portion of market returns for the past 18 months (though one could argue the past decade). I do not expect this to be the end of the economic expansion, so it is likely a good place for investors with a longer time horizon to deploy cash. Of course, my view will update as new data comes in.

This week’s update is abbreviated due to the Thanksgiving holiday.