US Market Commentary
This week has recovered some of September’s decline, but we should be prepared for a rocky October based on historical seasonal patterns after a negative September. The recovery may not be as smooth as last week and is more likely to fully emerge as we enter the late October-November earnings season.
Washington's inability to pass spending plans creates a psychological overhang on investors BUT it has very little impact on corporations’ profit for next 12 months. I believe as COVID fears become less prominent the world economy can really pick back up. To me it is a question of WHEN not IF.
S&P 500 estimates expect 21% profit growth for Q4 2021, mostly propelled by Industrials (This means buy those Christmas gifts early as manufacturing is still catching up!). 2022 expectations are for 9% profit growth. All good numbers for the next 5 quarters.
My three biggest risks to the US markets for the remainder of the year, in order of likelihood:
1. Significantly higher than expected inflation leading to volatility in the bond markets and higher interest rates
2. Another COVID variant spreads globally causing regions to economically slow, or even just the fear of it keeps people at home and away from work.
3. Chinese defaults become more widespread and Chinese economy slows significantly spreading to US instability.
I will be watching interest rates and the yield curve carefully in the coming weeks.