Week in Review


Week in Review: September 24, 2021 

Transitory Headwinds


U.S. equities rallied after Monday’s sell-off, culminating during the week that ended in the black after major Fed announcements and a continued swirl of economic data that calls into question the outlook for inflation and growth. On Capitol Hill, House Democrats attached a debt ceiling increase to the must-pass funding bill despite its likely inability to pass the Senate. Meanwhile continued friction between progressives and moderates may keep the bipartisan “hard infrastructure” legislation on ice. Political uncertainty, supply bottlenecks and stressors emanating from China added turbulence to markets. We view this confluence of headwinds as more short-term in nature, leading to a brief economic data pullback that should ease or reverse as we move beyond a difficult stage.

In its September meeting, the Federal Reserve (the Fed) announced the tapering of asset purchases “may soon be warranted,” depending on whether or not “decent” labor market reports ensue. The Fed reiterated its goals of maximum employment and annual long-term inflation averaging 2%. They highlighted that progress on vaccinations and strong policy support have led to robust economic activity and an improving labor market. Importantly, the Fed revised their economic projections, signaling slower economic growth this year coupled with higher inflation for longer. We do note, however, that growth next year was revised higher. Charmain Jerome Powell re-emphasized his view of high inflation as transitory and labor shortages as expected to improve over time.

The Fed made no changes to policy rates, illustrating their intention to leave them on hold until late 2022 to early 2023, as per the “dot plots.” Meanwhile, Norway lifted rates this week, while the United Kingdom and European Central Bank are following closely behind. A handful of emerging market countries have also lifted rates. As a result, the Fed’s shift to “very accommodative” from historical levels of accommodation should not be viewed in isolation. U.S. 10-year Treasury yields ended the week flat at 1.45% (see Figure 1).

September’s softer than expected Purchasing Managers’ Indices (PMIs) reflect lingering disruption to service and manufacturing sectors from the delta variant and semiconductor and labor shortages. As a result, third-quarter GDP expectations have lowered, and pricing pressures and labor shortages have been cited by company management teams as particularly burdensome. The manufacturing index fell to a five-month low, while output prices and order backlogs soared higher. Although reflective of heightened inflation, the transitory barriers to PMI growth reflect the short-term nature of this supply and demand imbalance. As headwinds abate, macroeconomic data should pick up momentum and once again surprise to the upside. 

On the housing front, data was a bit more upbeat. Confidence among homebuilders rose, and more housing starts and permits were created than forecasted. In addition, home sales surprised to the upside, rising to a four-month high in August, demonstrating strong housing market demand.  

The S&P 500 traded near its worst levels on Monday and was flirting with its first pullback from last fall before closing at a slightly higher level. On an intra-day basis, the 5% pullback threshold was breached. The index has moved higher since that point. Value and cyclical pockets of the market led. We view this most recent episode of volatility as the normal product of a market that had run up substantially with little resistance even as some cracks in the more bullish outlook began to emerge. Yet stocks rallied midweek, burying the “hawkish-at-the-margin” Fed narrative that was put forth by many headlines. Thursday’s “risk-on” tone across stocks, bonds and currencies was facilitated by the Fed’s successful press conference and easing fears from a troubled Chinese property developer. On a fundamental basis, equities remain underpinned by robust and consistent revenue growth coupled with expanding margins, on aggregate.

This week’s sell-off was partially attributable to fears pertaining to Evergrande, the second-largest property developer on mainland China. Evergrande might default on interest payments to bondholders after skipping payments to banks earlier in the week. Investors are fearful that there could be potential bolt-on risks to other property developers or the credit markets. But we believe these fears are overblown and find little risk of contagion. Chinese policymakers are likely to work to limit economic disruption to the strategically important housing sector. In our view, risks pertaining to Evergrande and the recent regulatory environment are more ring-fenced to China with limited applicability to other markets.

From an investment strategy standpoint, we view recent headwinds to markets as transitory as opposed to more enduring threats to our broader thesis. Our fundamental outlook is that strong revenues and profit margins should support earnings and equities in a grind higher. To that end, we would advocate the use of extended weakness as an opportunity to rebalance into segments that may have drifted from tactical weights.


Figure 1: U.S. 10-year Treasury yield

         10yr UST   

Source: U.S. Department of the Treasury (as of September 24, 2021). 



Market Returns (USD) as of 9/23/2021





Global Equities

S&P 500

-0.5% 3.9% 19.7% 39.5%

Dow Jones Industrial Average

0.0% 1.2% 15.2% 32.4%


-0.8% 3.9% 17.4% 42.5%

Russell 2000

1.2% -2.0% 15.2% 57.2%

First Republic Founders Index

0.8% 0.6% 15.6% 53.6%

Russell 1000 Equal Weighted

-0.1% 0.1% 18.5% 48.5%

Fixed Income

ICE BofAML Municipals 1-10 Year A-AAA 

-0.1% 0.3% 0.8% 1.7%

Bloomberg Barclays Intermediate Government/Credit

-0.3% 0.2% -0.7% -0.2%

Bloomberg Barclays High Yield Bond

-0.1% 1.3% 4.9% 11.9%

Market Levels


Week Ago

Year End

Year Ago

S&P 500

4448.98 4473.75 3756.07 3236.92

Dow Jones Industrial Average


34764.82 34751.32 30606.48 26763.13

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

1.41% 1.34% 0.93% 0.68%

Gold ($/oz)

$1,742.76 $1,753.77 $1,898.36 $1,863.34

Crude Oil ($/barrel)

$73.30 $72.37 $47.85 $42.72

U.S. Dollar / Euro ($/)

1.17 1.18 1.22 1.17

U.S Dollar / British Pound ($/£)

1.37 1.38 1.37 1.27

Japanese Yen / U.S. Dollar (¥/$)

110.33 109.73 103.25 105.39