Stocks continue to make new highs, with the S&P 500 Index up more than 20% for the year and 60 new all-time highs. But the big event this week is the Federal Reserve Bank (Fed) meeting. LPL Financial Strategists Jeff Buchbinder and Ryan Detrick discuss why they expect tapering to be announced and what it could mean. They also discuss some worries they have and take a look at the recent economic data.
Tapering Is Here
The Fed is widely expected to announce tapering at their meeting this week and Jeff notes that at this point anything less would be a major surprise. Ryan then points out that inflation continues to be a worry, but supply chain issues are showing some major bright spots. Jeff notes some of the autos had very nice things to say about supply chain issues—another major positive sign.
In honor of Halloween, Jeff and Ryan discuss some potential things that scare us. One worry, Ryan notes, is the huge stocks gains in October that could steal some of the seasonal gains often seen in the final two months of the year—that and some signs of too much optimism. Jeff explains that another worry is inflation is still running hotter than expected and a Fed policy mistake could also be something that could upset the apple cart. What if inflation isn’t transitory and the Fed doesn’t raise rates in time? Well, that isn’t our base case, but it would be a big worry. A final worry, Jeff points out, is profit margin pressures could hurt future earnings.
Economic Growth Is Coming
Third quarter Gross Domestic Product (GDP) came in at only 2.0%, versus 6.7% the prior quarter. Jeff isn’t overly concerned about this COVID-19 Delta variant induced slowdown, as future growth should be quite strong. Earnings season has been spectacular, with more than 80% of company’s beating estimates—and what corporate America has had to say about the future is quite strong. The Fed is the big event this week, but the monthly jobs number on Friday is the other big one. Jeff and Ryan are looking for close to half a million jobs created in October (according to Bloomberg estimates) but expect that number to expand even more over the coming months as the reopening continues.
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