Home About Archives RSS Feed

@theMarket: Markets Are on the Cusp

By Bill SchmickiBerkshires Staff
It was another tumultuous week in the markets. Volatility spiked as events in Washington and around the world injected an atmosphere of caution and indecision among investors. I expect more of the same.
 
Welcome to October. A month in which I see a continuation of the last few weeks of uncertainty. The political circus in Washington, D.C., is not helping, and is set to continue making headlines in the days ahead. The debt limit controversary is probably the largest challenge investors face this month. Simultaneously, the battle between progressive and moderate Democrats over the passage of two government spending programs, will continue to monopolize investor's attention.
 
The bipartisan infrastructure package and the larger, "Democrat only" Biden social safety net program is the scene of an unusual battle between splinter groups of the same party. Republicans have already said that the larger Biden program would be dead on arrival in the U.S. Senate, so passage will depend on getting Biden's program passed via the reconciliation process. In order to achieve that, the progressive wing of the party demands that the programs be twin tracked, otherwise no deal. At stake is a lot of spending that would power the economy in the years ahead, but also increase the federal debt substantially.
 
I expect both will pass at some point. The Biden $3.5 trillion spending plan will need to be whittled down by a $1 trillion or so for the moderates to agree. The $1 trillion bipartisan, infrastructure plan will probably pass as is, because polls show that most American voters are in favor of the infrastructure spending on roads, bridges, and transportation. Parts of the larger package — boosting education, care of the sick and elderly, health care, and climate change — also have strong voter support. But the areas that have lower support among voters will probably determine what will get cut (or modified) and what stays in the plan.
 
As I advised last week, the shutdown in government was averted. A stop gap measure passed on Thursday, Sept. 30, effectively kicked that can down the road until December 2021. It is still on the plate, but on the back burner for now.
 
Expectations of the U.S. economy's third-quarter performance, as well as the yearly results for 2021, continue to be ratchetted down. As I warned readers, economic growth has been slowed somewhat by both the Delta variant of the coronavirus and supply chain bottlenecks. That said, the GDP is still expected to grow by 5.6 percent, compared to the 6.7 percent forecasted in a May 2021 survey conducted by the National Association for Business Economics. 
 
Although the economy may be slowing, inflation remains stubbornly high, contrary to the Fed's belief that any inflation we experienced would be "transitory." In fact, the word has disappeared from Fed statements and speeches altogether. Instead, Fed Chair Jerome Powell called inflation "frustrating" and sees it running into next year. Some market forecasters wonder if we might be heading toward stagflation, which might be in the cards for next year.
 
It is too early to tell, but whatever the outcome, the Fed has already decided to taper, beginning sometime this quarter. About the only thing that might delay that decision would be the non-farm payroll report set to be released next Friday, October 8, 2021. If job gains slow dramatically, it might cause the Fed to postpone tapering, or so the market believes.
 
As for the markets, last week, I warned that we were not out of the woods just yet. This week we suffered another pullback, re-testing and broke last Monday's lows on the S&P 500 Index. This is a change from the recent behavior of the stock market since last March. Up until now, every dip has been bought, and stocks never looked back. We have now broken the uptrend channel in place since last April This change in behavior and the technical charts argue for further downside ahead, maybe even to the 200-day moving average, which would be another 5 percent down from here.
 
Large cap technology suffered the brunt of the selling, while cyclical sectors managed to outperform on a relative basis. I expect the selling will continue if the U.S. dollar continues to rise and bond yields rise along with the advancing greenback.  If we are headed downward, there will be oversold bounces that could last for a week or two along the way. I believe that after this volatile period, markets will rebound into the end of the year.
 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

 

0 Comments
     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Pittsfield & PCTV Team Up for Virtual Tree Lighting Ceremony
Briefs Around the County: Talks, Music, Books & More
Springfield Diocese Adds New Name to Allegations Listing
Former NYC Counsel Joins Cain Hibbard & Myers
Mount Greylock Posts First Quarter Honor Roll for 2021
Bay State Games Cancels Winter Figure Skating Competition
Preview: Winterlights Returns to Illuminate Naumkeag
Pittsfield Council Rejects Eversource Pole Request for Unpaid Taxes
Cheshire Mammoth Cheese Featured in Netherlands Cheese Magazine Kaas!
Williams Men's Basketball Improves to 5-0
 
 


Categories:
@theMarket (390)
Independent Investor (451)
Retired Investor (68)
Archives:
November 2021 (7)
October 2021 (8)
September 2021 (9)
August 2021 (6)
July 2021 (8)
June 2021 (6)
May 2021 (6)
April 2021 (9)
March 2021 (8)
February 2021 (8)
January 2021 (5)
December 2020 (6)
Tags:
Bailout Euro Taxes Election Currency Congress Fiscal Cliff Commodities Economy Rally Japan Energy Europe Retirement Stock Market Oil Pullback Debt Ceiling Debt Recession Stocks Selloff Wall Street Interest Rates Banks Greece Stimulus Crisis Jobs Europe Federal Reserve Housing Metals Deficit Markets
Popular Entries:
The Retired Investor: Thanksgiving Post-Pandemic
@theMarket: Ben Does It Again
The Independent Investor: And Now For That Deficit
@theMarket: Markets Are Going Higher
@theMarket: Santa Visits Wall Street
@theMarket: Jobless Number Spoils the Party
Independent Investor: Enough Already!
@theMarket: Let the Good Times Roll
@theMarket: The Bottom Is In
@theMarket: Greece — How To Default Without Defaulting
Recent Entries:
The Retired Investor: Thanksgiving Post-Pandemic
@theMarket: Market's Week of Indecision
The Retired Investor: The Teacher Shortage
@theMarket: Annual Inflation Hits 30-year Highs
The Retired Investor: SALT Away?
The Retired Investor: Vicious Cycle Between Energy & Food Prices
@theMarket: Markets Get a Green Light
@theMarket: Good Earnings Support Markets
The Retired Investor: The Billionaire Tax That Wasn't
@theMarket: Stocks Are Signaling an All-Clear