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- Stocks were mixed last week. We saw global markets (represented by the MSCI All Country World Index) up 0.1% and domestic stocks (represented by the S&P 500 Index) up 0.5%. The concerns over default by Chinese property developer Evergrande caused emerging markets to lag for the week, which were down -1.0% (represented by the MSCI Emerging Markets Index).
- The Federal Reserve held their normal two-day meeting last week. As was expected, interest rates were left unchanged but the focus was primarily on the asset purchase program. In his remarks, Fed Chair Jerome Powell indicated that they’re close to making adjustments to the asset purchase program, but wants to see continued improvements in the labor market before tapering. Markets are expecting the Fed to announce tapering at the next meeting in November.
- Oil prices rose up around $74/barrel at the end of the week. As a result, energy stocks were the leaders with the sector up 4.7% for the week.
- Keep your eyes on news coming out of Washington in the coming days. The federal borrowing limit is a hotly debated topic and there will need to be decisions made to prevent the government from running out of money. There have been three government shutdowns in the last decade, with the longest lasting 36 days from late 2018 through early 2019. We do expect deals to be made on the debt ceiling as well, but be cautious on headline risk as each of the two parties tries to play politics.
- A lot of the headlines in financial news have been centered around the second-largest property developer in China, Evergrande. The issue is that the heavily indebted company was likely to default on some of its debt, which sparks conversation around financial contagion. Our position on this is that those concerns are likely very overblown. Markets had already been pricing in this possibility since earlier in the year, when the price of the debt dropped sharply. The size and exposure of the outstanding debt doesn’t present itself as anything other than a concentrated issue for the company. We do think the Chinese government will get involved and restructuring will take place. Otherwise, we don’t see anything indicating a larger financial issue globally.
- I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.
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