Market Commentary 10-7-21
Clint Carpenter, Director of Operations
On October 18th, the federal government reaches it’s borrowing limit, or debt ceiling as it is called. Basically, if that ceiling isn’t raised, the government cannot pay its bills. This has never happened - the U.S. has never defaulted on its obligations because congress can usually come to an agreement on how to raise it.
Economists say a default would cause a lot of problems, things like a jump in interest rates, severely diminished reputation of the full faith and credit of the U.S. government now and in the future, as well as delayed checks for social security recipients and U.S. armed services members. Running out of money could damage treasury bills, considered the safest asset on the planet, and could weaken demand for the U.S. dollar, potentially giving other currencies a run at the globe’s preferred currency.
Congress knows it needs to raise the limit, but partisanship has never been stronger - Republicans are vehemently opposed to many of the spending bills Democrats have proposed and plan to pass without bipartisan support.
The debt ceiling is often used as a tool to reach agreement, but this deadline is rapidly approaching at a time when these bills are reaching final stages. On Wednesday, Senate Minority Leader McConnell indicated that he may offer a short-term ceiling extension which could ease this pressure. The markets have already responded positively to that.
We’ll be watching this closely, along with the rest of the world, especially as we get further into October, which is traditionally the most volatile month of the year.
Kris Venezia, Market Analyst
September is historically not the friendliest month for the markets. You couple that with some hiccups in the global economy and you get some losses like we had in September.
The frustrating part for us is there are still several items we have to monitor that we will probably not have answers for in the near term.
As Clint touched on, the debt ceiling has become an issue to watch.
We will have more information on Friday when the next jobs report comes out, but unemployment is higher than expected at this point in the economic recovery. There are several factors analysts believe is contributing to this. The frustrating part here is that there are a lot of jobs open and there are people unemployed, but for some reason, the job growth is coming at a slow pace.
We have discussed this in previous commentaries, but supply chain issues are continuing to be a pain for many companies. Covid outbreaks and restrictions in parts of the world, like Vietnam, are causing problems. Transportation with ships across the Pacific, unloading those ships and then getting trucks to transport items in the U.S. are all slowed down.
The boosted unemployment benefits have stopped. The form of stimulus ending could have a slightly negative impact on consumer spending.
Consumer sentiment with the economy is still low compared to pre-Covid times. Surveys seem to indicate that part of the issue comes from consumers who are concerned about Covid. Other concerns that come out of surveys include politics. Republicans are less happy with the economy in 2021 than they were during the Trump administration. There are consumers who also say they are worried about inflation.
Finally, inflation is putting a drag on investors appetite for risk. There are numerous factors contributing to inflation. They include higher commodity prices and higher wages, among other things. Commentary from business executives has led us to believe inflation will stay hot into 2022. The hope earlier this year was that inflation would cool off late in 2021 into 2022.