Week in Review


Week in Review: September 10, 2021 

Flattening the Economic Curve


U.S. equities lost steam (albeit making a rebound on Friday) amid indications of slowing economic growth, the anticipation of fiscal policy developments, and ongoing delta variant cases. In our view, the next couple of months will likely be bumpy, due in part to the weakness that equities historically exhibit in September and October. From a data perspective, the Citi Economic Surprise Index is at its lowest level since May 2020 (see Figure 1). Contributing factors include supply chain shortages, which linger and are hampering Q3 economic growth projections. To wit, a slew of analysts have recently downgraded forecasts for the latter half of the year, including Dallas Federal Reserve (Fed) President Robert Kaplan, who lowered his projection for full-year growth to 6%, as opposed to his prior expectation of 6.5%. In our view, this expected slight downturn does not represent a seismic challenge to economic growth or equity values; rather we expect that much of the optimism being removed today will simply be recycled later down the line and into 2022. From this perspective, we envision a flattening of the “economic” curve in a positive sense — shifting from a more dramatic peak-to-trough to an elongated above-average-for-longer setup. 

From a policy and legislative perspective, the next month or two will likely be turbulent. Fed comments this week indicate that tapering might not occur until 2022 if the labor market continues to weaken. From the Executive Branch, President Joe Biden has many potential appointments forthcoming, such as the reappointment or replacement of Fed Chair Jerome Powell. This weekend, tax policy changes are likely to filter through from legislative committees. Many headlines will follow the development of the Democrats’ multitrillion-dollar spending package, including its timing, size, funding breakdown and disbursement. Beyond what may be the largest spending package in generations, the deadline to fund the federal government needs to be extended, as does the debt ceiling. We continue to caution investors that headline risk likely will exceed actual legislative risk, as trail balloons can be floated by politicians but ultimately concessions and deals need to be struck with such a slight balance of power in the House and Senate. By the end of September or early October, there will be more clarity on what policy might ultimately look like.

On the economic front, it’s difficult not to acknowledge a slight slowdown. However, although various health, political and supply factors are slowing short-term economic growth, many pent-up tailwinds should unwind in coming quarters. Job openings for July increased more than expected to an almost unheard-of level nearing 11 million. This makes it quite evident that labor weakness is certainly not demand-related. Of these job openings, the majority of private sector positions are found in COVID-19-related segments and in those pockets of the economy that are yet to have fully recovered. From a public sector standpoint, open positions are mainly centered in the education space. As a result, the spread between job openings and job seekers is near record levels. Coincidingly, wage pressures will likely remain elevated, as the pandemic continues to discourage many workers from rejoining the labor force. Additionally, pricing pressures are mounting. The U.S. producer price index for final demand climbed higher than expected but did decline from the July’s level. With over 75% of the U.S. population vaccinated and a surging effort to vaccinate more around the globe, supply chain pressures may be expected to subside to an extent in coming months, which might better illustrate that the economy’s more intermediate and long-term recovery is on the right path. 

Equities took a healthy breather this week after running hot for what seemed like all year, with the S&P 500 experiencing its first two-day losing streak since mid-July. Energy and Materials lagged the most with concerns regarding the reopening trade. We would note that investor sentiment has moved from bullish to more neutral, and even bearish in some respects. Contrary to what many believe, this is actually a positive indicator as it allows for improvement in sentiment to drive capital flows back in. We acknowledge that sentiment is likely to remain subdued for a period given the concerns regarding the delta variant along with what we’re referring to as doldrums in economic data. This is likely to be short-lived, in our view, with data on the health and economic front improving as we near the fourth quarter. Therefore, in the near term, we are on heightened watch for bouts of headline risk, volatility and a potential pullback, but we remain steadfast in our more long-term commitment to a disciplined approach. From a fixed income perspective, rates have remained resilient even in the face of a downtick in economic data and an uptick in health concerns. On the fixed income front, yields began the week higher but have since sauntered lower, ending the week just shy of 1.34% on the 10-year Treasury. Treasuries have been in a relatively tight range of 1.20%-1.40% since the beginning of July.

We continue to advise that investors tune out superfluous noise and remain committed to their well-laid-out, long-term investment goals and objectives. Our tactical strategy remains grounded in a belief that economic growth will remain higher-for-longer rather than experiencing a “boom-and-bust” cycle. The slight pullback in data momentum illustrates this. A data recession does not necessarily portend an actual economic recession. Corporate earnings should therefore continue to expand at a very solid clip, supporting a grind higher in equities relative to fixed income. We remain favorable toward pockets of investment more exposed to solid growth including Cyclicals, Small Caps and Value, but with a balanced preference to quality. The actions on Capitol Hill in the coming weeks will likely have lasting implications for the economy and markets; however, the legacy effects will likely be different from more short-term gyrations induced by headlines. 


Figure 1: Citi Economic Surprise Index: U.S.

          US Surprise

Source: Bloomberg (as of September 9, 2021). 



Market Returns (USD) as of 9/9/2021





Global Equities

S&P 500

-0.9% 4.8% 20.8% 34.2%

Dow Jones Industrial Average

-1.6% 1.5% 15.5% 27.2%


-0.5% 5.3% 18.9% 37.8%

Russell 2000

-2.4% -2.5% 14.6% 48.9%

First Republic Founders Index

-1.8% 0.3% 15.3% 48.9%

Russell 1000 Equal Weighted

-1.8% 0.7% 19.1% 43.1%

Fixed Income

ICE BofAML Municipals 1-10 Year A-AAA 

0.0% 0.4% 0.8% 1.9%

Bloomberg Barclays Intermediate Government/Credit

0.0% 0.6% -0.3% 0.2%

Bloomberg Barclays High Yield Bond

0.1% 1.2% 4.8% 10.7%

Market Levels


Week Ago

Year End

Year Ago

S&P 500

4493.28 4536.95 3756.07 3398.96

Dow Jones Industrial Average


34879.38 35443.82 30606.48 27940.47

10-Year U.S. Treasury Yield (Constant Maturity)

1.30% 1.29% 0.93% 0.71%

Gold ($/oz)

$1,794.58 $1,809.66 $1,898.36 $1,946.84

Crude Oil ($/barrel)

$68.14 $69.99 $48.01 $42.13

U.S. Dollar / Euro ($/)

1.18 1.19 1.22 1.18

U.S Dollar / British Pound ($/£)

1.38 1.38 1.37 1.3

Japanese Yen / U.S. Dollar (¥/$)

109.72 109.94 103.25 106.18