Stocks rebounded, returning to within 2% of all-time highs, as earnings season got off to a great start. Stock indexes slipped on Monday and Tuesday but came back in a big way late in the week recording their second positive week in a row. This week, ninety-year-old actor William Shatner became the oldest person to ever travel to space. I have broken down this week’s news using quotes from his most famous character, Captain Kirk.
Last year Americans were hanging on tight to their savings, but the purse strings are starting to loosen. September retail sales report showed a 14.3% year-over-year increase in retail spending. This is exceptionally strong by historical standards, reflecting the ongoing rebound in the economy. The growth rate in spending is slowing. It is only half of the phenomenal rate seen in May and is the slowest rate of spending growth since March. Expect an uptick in activity as we round out the year, with holiday shopping and more than $2 trillion in accumulated household savings.
Market volatility feeds on uncertainty. The market lacks clarity on two major pieces of information involving the Federal reserve. First, what will the impact of future tightening by the Federal Reserve be? Inflation data released this week continues to support the case for the Fed to taper its bond buying. The Consumer Price Index (CPI) rose 5.4% compared with the same month a year earlier. Rising energy costs and disruptions in global supply chains caused inflation to pick up slightly from August’s level. The other unknown involving the Fed is if there will be a shift in the central bank’s leadership? Chairman Powell’s term is ending in February. If President Biden renominates Powell, it will be because he favors continuity and Powell’s largely dovish approach even amid rising inflation pressures.
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