This Month's Newsletter

October 13, 2021


Well, September certainly lived up to its billing as one of the most volatile months of the year!

After a run of seven consecutive positive months, the S&P 500 finally relented and gave back some gains, dropping just under -5% month-over-month. What happened?

When news broke that Evergrande, China’s second-largest real estate development firm, was struggling to pay its debts, the market sold off a bit. Exposure to Western firms appears limited, so Evergrande’s troubles seem mostly restricted to China.

September’s sell-off intensified on the news that Federal Reserve Chairman Jerome Powell wants to slow down the Fed’s direct stimulus program. Following the pandemic-induced recession last year, the Fed stepped in to bolster the US economy by printing money to buy bonds, which pushed down interest rates. Lower interest rates make it easier for consumers and companies to borrow money to buy things. People buying more stuff tends to stimulate growth and shorten the recession.

Objectively, that worked: 2020’s recession was the shortest on record and the economy seems to be on surer footing. As a result, the Fed wants to slow down their stimulus; however, it’s not as simple as turning off the money printer. Tapering the stimulus means balancing the needs of the economy against the risk of runaway inflation – no simple feat. And the market reacted very poorly the last time the Fed sought to reduce its stimulus in 2015, finishing flat for the year. So, this time, they’re trying to do it very carefully.

Hanging over the Fed’s decision is the fight over the Biden Administration’s $3.5 trillion spending proposal, which no doubt contributed to Wall Street’s uneasiness.

It all sounds very dire. In truth, Evergrande’s troubles appear to be contained, the spending fight is more political theatre than anything, and the Fed tapering, while worth watching, implies a resilient US economy. In summary, September is a bump on what has otherwise been a strong year.


After seven consecutive months of positive performance, all three major indices finished the month lower.

Energy stocks were the lone positive sector in September, posting a +9.44% return for the month. With a year-to-date return of +43.34%, Energy stocks have handily outperformed the broad S&P 500 Index. Financials and Communications Services stocks struggled in September, though both continue to sit at the top of the sector leaderboard for 2021.

Consumer Discretionary, Consumer Staples, and Utilities each slipped in September, though they remain positive on the year.


Bonds continue to struggle in 2021, with all three indexes producing negative returns in September. Corporate bonds (represented by the S&P 500 Bond Index) briefly turned positive in August before falling in September in the wake of the potential Fed taper news.

Economic Data

The ports of Los Angeles and Long Beach are two of the three busiest ports in the United States, handling the bulk of the traffic from key trading partners like China, Vietnam, Japan, South Korea, and more. And right now, there is a sizeable queue.

The image below indicates the number of cargo freighters docked for either Los Angeles or Long Beach. The back-up is due to global firms racing to meet the surge in demand for goods.

In economics, this is known as ‘demand-pull inflation,’ an environment where too many dollars are chasing too few goods, precipitating a rise in the general price level. Inflation, as measured by CPI, has been essentially flat since June as the United States and its trading partners seek to navigate the evolving post-pandemic landscape.


Here’s what we’re watching in the month ahead:

Earnings season. Companies will begin reporting earnings for the third quarter in mid-October, giving us an opportunity to see how the ongoing recovery has impacted the world’s largest and most profitable companies. Last quarter’s earnings season was objectively bullish.

Economic Progress vs COVID-19. Though COVID-19 fears have abated, concerns linger over the potential impact the delta variant my have on consumer spending, consumer confidence, and broad economic growth. As the US consumer goes, so goes the rest of the economy.

Federal Reserve comments. The Fed isn’t scheduled to meet this month, however, that doesn’t mean communications will stop. The Fed’s intent to reduce its asset purchases remains in focus for Wall Street, so any comments from Chairman Powell or other members of the Federal Reserve will be closely monitored.

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