Ameriprise Financial: Economy Remains Fundamentally Strong Despite Headwinds
The focus last week was on monetary policy, as the Federal Reserve met to determine when to start cutting its bond buying program. And although he has chosen to postpone the decision, he has sent a clear message that is ready to make such an announcement in November. President Powell went so far as to say that the Fed is aiming to halt the program by the middle of next year if the economy grows as expected. In addition, a good half of meeting attendees indicated that the first hike in the next expected rate cycle could take place in 2022. Stocks rallied after the Fed meeting on Wednesday, reversing the cuts earlier in the week. on the fear of credit problems in China and the breakdown of technical support the previous Friday. For the week, the S&P 500® the index gained 0.5%, halting a two-week decline that took the index down 4.0% from its Sept. 2sd high. Despite the slightly more hawkish policy outlook, investors were reassured by the Fed’s constructive view of the economy and inflation. Yields on intermediate bonds also rose sharply. The ten-year Treasury bill yield soared through resistance, rising 1.30% before the meeting to end the week at 1.45%. And, as this week begins, is trading at 1.48%, its highest level since late June.
Fiscal policy takes center stage this week
This week, the focus will be on fiscal policy, as Congress faces a series of pressing legislative challenges. The federal fiscal year ends Thursday and Congress must pass new funding or risk a government shutdown. Separately, the Treasury Department has warned that the government’s borrowing power is expected to run out in October, raising the possibility of default if additional borrowing power is not allowed. At the same time, the House is expected to vote on the $ 1 trillion infrastructure bill that has already been passed by the Senate.
Progressive Democrats in the House have threatened to derail its passage unless a vote on the presidential $ 3.5 trillion social infrastructure bill is the first, despite less than full support for a bill. law of this size in both chambers. Expect permission to keep the government in business, at least temporarily, as neither party wants to be blamed for a shutdown. The same ultimately applies to extending the debt ceiling, despite the political spirit of the mess. The division within the party among the Democrats is more problematic, but President Pelosi has indicated that the $ 1 trillion bill will be voted on this week and that the $ 3.5 trillion bill will undoubtedly be voted on. reduced as negotiations continue.
Economic activity strengthens as delta variant infections slow
In its Wednesday meeting statement, the Fed said: “With the progress of vaccinations and strong political support, indications of economic activity and employment continued to strengthen… The trajectory of the economy continues to depend on the evolution of the virus. ” And the news here is encouraging. After rising steadily in July and August, the seven-day moving average of new infections has trended downward. As of September 1, the seven-day average stood at 166,000 new cases. From the 26e it had fallen to 120,000. The CDC now reports that 64 percent of the population received at least one dose of the vaccine, as has 75 percent of the population aged 12 and over. The global trend has been similar downward since early September. However, the impact on economic activity continues to be felt in supply chain disruptions, reluctance to travel and restrictions on mobility.
Although third-quarter GDP estimates were lowered throughout the quarter as the Delta variant wreaked havoc, these estimates have leveled off more recently, following the cautiously encouraging trend in new infections and some encouraging recent economic data. . The Atlanta Fed’s GDPNow forecast has stabilized at 3.7% since early September, after early August at 6.3%. Last week, flash PMIs edged down from August, but remained at a healthy pace. New home sales also rose more than expected in August, as did housing starts and building permits. Leading indicators were also strong. And retail sales in August were also particularly strong.
This week’s economic calendar includes several important reports, including the PCE deflator for August, which is expected to show an unchanged overall rate, but a slight improvement in the base rate. ISM reports for September should show the same modest drop reflected in flash PMIs. Durable goods orders for August, to be released on Monday, are also expected to be strong. While the Washington headlines have the potential to create a lot of noise this week and increase investor anxiety levels, the economy remains fundamentally healthy.
Opinions expressed are as of the date indicated, may change based on market trends or other conditions and may differ from views expressed by other associates or affiliates of Ameriprise Financial. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether on its own behalf or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into account the individual situation of investors.
Some of the opinions, conclusions and forward-looking statements are based on an analysis of information compiled from third-party sources. This information has been obtained from sources believed to be reliable, but the accuracy and completeness cannot be guaranteed by Ameriprise Financial. They are given for information only and do not constitute a solicitation to buy or sell the securities mentioned. The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as advice designed to meet the specific needs of an individual investor.
There are risks involved in investing, including the risk of losing capital.
A 10-year Treasury bill is a debt obligation issued by the United States government that matures in 10 years. The 10-year yield is generally used as an indicator of mortgage rates and other measures.
The GDP now The forecasting model provides a nowcast of the official GDP estimate prior to its release by estimating GDP growth using a methodology similar to that used by the US Bureau of Economic Analysis. GDPNow is not an official forecast from the Atlanta Fed. It is best viewed as a running estimate of real GDP growth based on the economic data available for the current measured quarter. No subjective adjustment is made to GDPNow – the estimate is based solely on the mathematical results of the model.
The Purchasing Managers Index (PMI) is an index of the dominant direction of economic trends in the manufacturing and service sectors. The PMI is based on five broad areas of inquiry: new orders, inventory levels, production, supplier deliveries, and employment. it is a leading indicator of economic conditions.
The PMI flash services is based on approximately 85 to 90 percent of total PMI responses each month. It is designed to provide an accurate advance indication of the final PMI data. As flash services PMIs are among the top economic indicators of each month, providing evidence of changing economic conditions ahead of comparable government statistics, they can have a significant effect on forex markets.
The ISM manufacturing index, also called the purchasing managers index (PMI) is a manufacturing estimate for a country, based on approximately 85% to 90% of total Purchasing Managers Index (PMI) survey responses each month. It is considered a key indicator of the state of the US economy.
The personal consumption expenditure (PCE) Measures of the prices that people living in the United States pay for goods and services. The PCE price index is known to capture inflation (or deflation) across a wide range of consumer spending and to reflect changes in consumer behavior.
Past performance is no guarantee of future results.
An index is a statistical composite that is not managed. It is not possible to invest directly in an index.
Definitions of the individual indices mentioned in this article are available on our website at ameriprise.com/legal/disclosures in the Additional Information on Ameriprise Research section, or through your Ameriprise financial advisor.
The third-party companies mentioned are not affiliated with Ameriprise Financial, Inc.
The investment products are not insured by the Federal Government or the FDIC, are not deposits or bonds of, or guaranteed by any financial institution, and involve investment risks, including possible loss of principal and a fluctuation in value.
Ameriprise Financial Services, LLC. FINRA and SIPC member.