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Does the Fed’s Beige Book Forecast Negative Market Headwinds?

According to the Sept. 8, 2021, release of the Federal Reserve’s Beige Book, the U.S. economy is facing many headwinds. The report found that restaurants and the travel sector saw a drop in activity. Home and auto sales were low because of fewer available houses on the market and a challenging supply of computer chips for auto makers. The same report found that although more people have found work, the level of newly created employment was mixed, despite a continuing need for more workers. Due to people quitting their jobs, people retiring, and those unable to find means of suitable childcare, the employment situation remains uncertain. With continued stressors on… Read More

Are Retail Reports a Sign of a Slowing Recovery?

As the U.S. Census Bureau reported on Aug. 17, retail sales fell by 1.1 percent during July compared to the revised June retail sales figures. This is in contrast to an increase of 20.6 percent between May and July and a 15.8 percent increase for the year-over-year comparison to 2020 for the month of July alone. The National Bureau of Statistics of China released retail sales figures for July on a year-over-year basis. The agency reported an increase of 8.5 percent for the month, missing the 11.5 percent growth target that many predicted, and lower than the 12.1 percent growth in June. The decrease was attributed to the resurgence of… Read More

Will Increasing Oil Prices Put a Ceiling on Global Economic Growth?

According to the U.S. Energy Information Administration’s Short-Term Energy Outlook, the June price of $73 per barrel for Brent Crude Oil was up by $5 per barrel over May. With more vaccinations being rolled out, uncertainty over OPEC+’s production moves, and a reduction in worldwide oil availability, the outlook for oil prices seems upward. If the price of energy – especially oil – keeps increasing, will it halt the improving economy in its tracks? As part of the commodity boom, crude oil is not immune from the rapid rise, creating an increase in inflation that’s subject to contention of being “transitory” or longer-term. Based on the World Bank’s semi-annual Commodity… Read More

How Will Uncertain Inflation Outlook Impact Stock Market?

The June 16 Federal Open Market Committee (FOMC) meeting Q&A session with Chairman Jay Powell and recent comments from The Fed have signaled two potential inflation rate hikes in 2023. Two days later, James Bullard, president of the Federal Reserve Bank of St. Louis, signaled there could be a rate hike as soon as 2022. With these mixed signals and upcoming FOMC meetings, how might inflation and the markets play out in 2021? Inflation and the Dollar One explanation for inflation is that there are too many dollars chasing too few goods – or more simply put, things will cost more over time. Say you can purchase a pair of… Read More

Will The Federal Reserve Create a Taper Tantrum in 2021?

With the economy reopening and more Americans receiving COVID-19 vaccinations, the economy is expected to be operating on all cylinders. However, some economists and market analysts are afraid The Federal Reserve may create a “taper tantrum” if and when it starts to reduce its purchase of U.S. Treasury debt. The Fed’s current track of purchasing $120 billion of U.S. Treasury debt every month has kept the 10-year yield moderated. However, if The Fed signals fewer monthly purchases from current levels, recent history has already seen higher 10-year yields and increased market volatility. As the Federal Reserve Bank of St. Louis outlines, the Federal Open Market Committee (FOMC) holds meetings eight… Read More

How Will a Steepening Yield Curve Impact Markets?

Based on data from the Federal Reserve Bank of St. Louis, the spread between the 10-year and two-year constant maturity Treasury rates increased by 66 basis points – from 0.48 percent in July 2020 to 1.14 percent by February 2021. Due to the Federal Reserve’s open market operations, two-year notes have fallen to near 0 percent, while the 10-year yield has risen higher. Experienced investors and financial institutions such as the Federal Reserve Bank of St. Louis would see this change in the slope of the yield curve of the two U.S. Treasury rates and call it a steepening yield curve. This recent widening spread illustrates what a steepening yield… Read More

How Will the Projected Commodity Super-Cycle Impact Investors in 2021?

As the January 2021 World Bank Pink Sheet documented, prices increased month-over-month from November 2020 to December 2020. Highlights include the price of oil jumping by 15 percent. The cost of fertilizer jumped 2.2 percent, grains increased by 3.8 percent and iron ore jumped by 25 percent. While there’s been no official “commodity super-cycle,” according to economists or financial analysts, the trend certainly shows commodity prices increasing. 2020 caught the world off-guard with the coronavirus pandemic, sending the price of oil negative. According to Rice University’s Baker Institute for Public Policy, on April 20, 2020, “the prompt contract price” or how much a barrel of West Texas Intermediate (WTI) cost… Read More

How Will Single Party Governing Impact the Markets in 2021?

About four in 10 Americans (41 percent) look positively toward single-party control at the national level, according to an October 2020 Gallup annual governance survey. This is compared to 23 percent of respondents desiring multiparty control. Breaking it down by party, 43 percent of Democrats want single-party rule, while 52 percent of Republicans desire single-party governance. One notable finding is that, looking back to 2002, 32 percent preferred single-party control when it comes to independents. This was the highest-ranking over the past 18 years. As the Brookings Institution points out, now that Jon Ossoff and the Rev. Raphael Warnock are U.S. Senators, the U.S. Senate is divided 50-50 with Vice… Read More

How Will the Biden Administration’s China Policy Impact Markets?

The Obama and Trump administrations couldn’t have had a more different approach when it came to U.S. relations with China. As the Institute for China-America Studies (ICAS) explains, under the Obama administration, the United States favored a trade and investment approach when dealing with China, while the Trump administration had a national security focus. The ICAS believes the Biden administration will address trade and economic imbalances through a modified approach, including reducing tariffs on imported Chinese goods over time to decrease inflation for American consumers. Another example is maintaining pressure on China to cut government subsidies for competing industries, currency games, and exporting products to the United States at artificially… Read More

How Will the Biden Administration Influence the Federal Reserve?

With the nation on the precipice of a transition of administrations on Jan. 20, 2021, there will need to be many roles filled both in and out of the White House. With the potential for Janet Yellen to replace Steven Mnuchin as the next treasury secretary, there is much speculation about how the Federal Reserve will be shaped by the Biden administration. Predicting Changes to the Federal Reserve When 2022 arrives, Chair of the Federal Reserve Jerome Powell’s term will expire. While presidents have historically given another term to first-term chairs who were appointed by the outgoing administration, there is no indication that Powell will stay on for another year.… Read More