Weekly Market Update 11/29/2021
Washington is critical in the mind of Wall Street these days. First, it was haggling over a $1.2 trillion infrastructure bill. That legislation finally was signed by President Biden on November 15th. Now, negotiations are under way to secure the second part of the Administration program—the so-called Build Back Better Act. Opposition to this social and climate spending plan is fierce, though, and passage is uncertain, especially with inflation so persistent.
Inflation clearly is worrisome. Indeed, data issued November 10th shook the Street, as consumer prices rose at their fastest pace in three decades, led higher by soaring gasoline quotations. Labor shortages, rising wages, and supply chain issues are only making matters worse. Also, upcoming pricing surveys (due out after we go to press) may bring little relief, thus further unsettling the Federal Reserve. The bank’s next FOMC meeting—set for the middle of this month—may be telling, with new reductions in bond buying and hints of future upticks in the federal funds rate target both possible.
Meanwhile, the economy is doing well, led by gains in retail sales, industrial production, and building permits. But housing starts are flattening out, held back by shortages of materials and labor. In all, we expect GDP to press ahead by 4%-5% in the current quarter, thereby easily surpassing the rate of gain secured during the preceding three months.
A strengthening economy should be good news for corporate earnings. In fact, profits already increased notably in the third quarter, easily topping consensus forecasts, despite a pedestrian economic showing. It would seem reasonable to expect an encore, at a minimum, in this year’s final stanza in a presumably stronger business setting.
Investors are upbeat, despite some ups and downs, as the market’s trend is still positive. But with fourth-quarter profit reporting season still weeks off, an interim catalyst may be needed to drive stocks higher. Passage of the Build Back Better Act and the confirmation of Fed Chair Jerome Powell to a second term likely would help.
Conclusion: There is lingering uncertainty; stock prices are high; and caution is suggested. But sentiment largely favors the bulls.