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Weekly Market Update for August 27, 2021

by Jim Ulland

Federal Reserve Chair Powell knows how to end the week on an upbeat note. After the troubling international and domestic headlines, he calmed the markets by saying the Fed was not through providing stimulus to the economy in the form of continued low interest rates. Many felt his Jackson Hole retreat comments would signal a reduction in the asset-purchase plan used to keep rates low. However, he said this “tapering” would not begin until year-end and that it would not signal an immediate interest rate increase. This now is expected at the end of 2022. The market embraces statements like this since low interest rates tend to fuel the economy and the stock market.

During the week, the market ignored the problematic rise in the Covid Delta variant. There is not a rush to close the economy again. The public seems willing to manage around this health problem and allow more parts of life to return to normal.

Inflation concerns also took a back seat to Chairman Powell’s remarks. This was despite the rise in crude oil prices by 10% and the announcement by the largest chip manufacturer in the world, Taiwan Semiconductor, that it was increasing prices by up to 20%. Chips shortages, which have slowed auto production, are expected to be in short supply well into next year. Unemployment filings were up marginally, but still bumping along a pandemic low. The July Consumer Price Index was up 4.2%, well above the Fed’s 2% target, the fastest pace in more than twenty-five years, but slightly below expectations.

Afghanistan generated big headlines, but the market seemed to lump that story in the political rather than economic news category. As tragic as the Afghanistan story is, it has not had an impact on the market, yet. Other political news was important, but not to the market. The Supreme Court allowed the renters’ eviction moratorium to expire. And the $3.5T “infrastructure” bill is not close enough to passage to cause alarm. Fears linger that this amount of additional spending will trigger inflation. The tax increase provisions in the bill are both numerous and substantial. If passed, these could slow the recovery. That concern will intensify if the legislation gets closer to passage.

Pandemic news was largely positive. The Pfizer/BioNTech vaccine received final approval. Previously, it and all other Covid vaccines had been for “emergency use only”. Official approval may encourage more to get vaccinated. A high vaccination rate is the ultimate defense against the pandemic.

The market wants to go up. By the end of the week, both the SP500 and the NASDAQ had set new records. For the week, The NASDAQ was up +2.82% the SP 500 was up +1.52%. Monday the SP 500 was +0.85%, Tuesday +0.15%, Wednesday +0.22%, Thursday -0.58%, and Friday +0.88%.

Next week, watch for the report on net new jobs created in August.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

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