Monday, August 16, 2021

A bit of profit taking has set in during the first pre-market session of a new trading week, ahead of a big week of economic data and the start of Q2 earnings season for Retail companies. At this hour, the Dow — coming off a fresh record-high close Friday afternoon — is down -125 points, the S&P 500 is -15 points and the tech-heavy Nasdaq is -50 points.

Aside from Retail Sales, Industrial Production/Capacity Utilization, Housing Starts/Building Permits, Philly Fed and, of course Initial and Continuing Jobless Claims Thursday morning, the also get the minutes of the latest Fed meeting, which will provide details to the last monetary policy discussions on the Federal Open Market Committee. Obviously, no interest rate hikes or tapering of asset purchases occurred, but how much focus was there on these things?

We’ve heard from Fed presidents more recently that tapering is a good idea sooner than later, including Dallas President Robert Kaplan just last week while being interviewed by CNBC. With a strong employment situation for the past couple weeks and inflation running hotter than 2%, Kaplan suggests a September announcement on tapering asset buybacks would come about in October or November of this year.

Inflation numbers are affecting the Back-to-School market currently, with clothing prices +77% from a year ago. Of course, this is not a perfect comparison because so few kids were headed back to the classroom late last summer. Supply-chain cost increases have led to a 220% rise in container shipping from Asia to the U.S., at +53% in trucking costs as goods make it to stores across the country.

We also see new data from the Empire State Manufacturing Survey for August: 18.3 on the headline is a big pullback from the record-setting 43.0 for July, which was unrevised as the August numbers came out. However, 18.3 is still higher than the average 15.5 over the past year (subtracting the 43.0 high and January’s 3.5 low), meaning goods-production in the fourth-largest state in the U.S.

A growing threat of the Delta variant aside, we’re still demonstrating strong growth in our economy — including in goods-producing numbers for August (we’ll see what Philly Fed has in store this Thursday). Thus, any Fed move to tighten it exceptionally loose flow of cash ought to be taken as a good thing, not something which triggers a “taper tantrum,” such as what we saw eight years ago. In any case, these sorts of moves should be on everyone’s radar.

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