AMERIPRISE FINANCIAL, INC.
With the passage of both the infrastructure bill and the social infrastructure budget resolution in the Senate last week, the stage is now set for a showdown on the most controversial element of the Biden administration's economic agenda. There was little objection to spending on infrastructure, at least theoretically, although there were meaningful differences regarding the specific spending targets, and how to pay for the bill overall. And still it took serious negotiations to reach a final agreement. The social infrastructure proposal, in contrast, will likely have to proceed with Democratic support alone. Among the problematic elements of the proposal that likely preclude any bipartisan support include its size at $3.5 trillion, the higher taxes required to finance it, as well as philosophical opposition to the social programs the proposal intends to fund.
Complicating matters is the increasing anxiety surrounding rising inflationary pressures and worries over the possible implications for the already bloated federal budget deficit. The Democratic party will undoubtedly face its own internal differences about all of this, and the size and specific tax proposals to fund it will no doubt evolve as debate commences in earnest. The Biden campaign was quite specific in its outline for which elements of the tax code it intends to target, including the corporate statutory rate, the top income tax bracket for high wage earners, capital gains rates for even higher earners, and changes to estate taxes. There appears to be a lack of unanimity between the moderate and progressive wings of the Democratic party regarding each of these elements, making it difficult to handicap how any final bill might look in terms of specifics. But change is expected, and the business and investing communities alike will be lobbying hard for any compromise that softens the tax hit.
Stocks Rally to Another Record High; Bond Yields Widened Again
In the meantime, stocks ended last week at another record high. The S&P 500® index gained 0.7 percent, bringing its year-to-date rise to 19 percent. Cyclicals and bond proxies led the way higher. Materials, financials, and industrials were joined by staples and utilities on the upside. The Russell 1000 Value index outperformed its Growth counterpart 1.1 to 0.2 percent. Helping matters was the July CPI report which, despite remaining elevated, did contain some evidence of moderation that lent support to the camp that insists higher realized inflation will ultimately prove to be temporary, most notably the Fed.
The yield on the ten-year Treasury note initially rose following release of the CPI on Wednesday, before receding to close two basis points lower on the week at 1.28 percent. Perhaps worth noting is the fact that high yield spreads widened once again last week, although the move was a modest four basis points. However, it was the sixth straight week of wider spreads dating back to the beginning of July, during which time the spread has widened by a cumulative 32 basis points off of a fourteen-year low. BBB spreads, in contrast, narrowed fractionally last week after having risen in five of the preceding six weeks. Overall, however, the move higher from its own fourteen-year low amounts to a rather benign seven basis points, suggesting any economic growth concerns remain subdued.
All Eyes are on the Federal Reserve's Next Policy Move
Speaking of economic growth, the Fed remains very much in the spotlight, as it edges closer to making a decision on whether and how to taper the pace of its bond purchases. It has no doubt welcomed the latest round of data on the health of the labor market, including the strong July jobs report, the falling weekly jobless claim totals, and the number of job openings relative to the number of available workers. Last week, Kansas City Fed President Esther George said, 'today's tight economy… does signal that the time has come to dial back the settings' of monetary policy, adding her voice to others that have recently been preparing the ground for a possible announcement in the weeks ahead. Expressing his preference for additional labor market data, however, Minneapolis Fed President Kashkari told Bloomberg last week that he would like to see a few more jobs reports like July's strong results. The Jackson Hole symposium is now just two weeks away, and although that venue has often provided a forum for policy announcements, it may be premature to expect something concrete on tapering intentions.
The next subsequent meeting of the FOMC takes place of September 21-22. That would allow for a look at the August jobs report, which may not provide enough definitive evidence of sustainable labor market momentum in the eyes of some FOMC members. Waiting a little longer would provide further insight into the impact on the labor market of the surging Delta variant of the Coronavirus, the end of extended unemployment benefits, and the reopening of schools. That would suggest that, assuming conditions progress as the Fed anticipates, an announcement could come at the FOMC's November meeting. And although that meeting is not accompanied by updated economic projections, as the Fed has reminded us in the past, all meetings are live.
Important Disclosures:
Sources: Factset, Bloomberg. FactSet and Bloomberg are independent investment research companies that compile and provide financial data and analytics to firms and investment professionals such as Ameriprise Financial and its analysts. They are not affiliated with Ameriprise Financial, Inc.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.
Some of the opinions, conclusions and forward-looking statements are based on an analysis of information compiled from third-party sources. This information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial. It is given for informational purposes only and is not a solicitation to buy or sell the securities mentioned. The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as advice designed to meet the specific needs of an individual investor.
A 10-year Treasury note is a debt obligation issued by the United States government that matures in 10 years. The 10-year yield is typically used as a proxy for mortgage rates, and other measures.
The Consumer Price Index (CPI) is an inflation indicator that measures the change in the total cost of a fixed basket of products and services, including housing, electricity, food, and transportation. The CPI is published monthly by the Commerce Department and is also commonly referred to as the cost-of-living index. Unless otherwise noted, CPI data in this report is one month trailing.
Investing involves risk including the risk of loss of principal.
Past performance is not a guarantee of future results.
An index is a statistical composite that is not managed. It is not possible to invest directly in an index.
Definitions of individual indices and sectors mentioned in this article are available on our website at ameriprise.com/legal/disclosures in the Additional Ameriprise research disclosures section, or through your Ameriprise financial advisor.
Third party companies mentioned are not affiliated with Ameriprise Financial, Inc.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, LLC. Member FINRA and SIPC.
Complicating matters is the increasing anxiety surrounding rising inflationary pressures and worries over the possible implications for the already bloated federal budget deficit. The Democratic party will undoubtedly face its own internal differences about all of this, and the size and specific tax proposals to fund it will no doubt evolve as debate commences in earnest. The Biden campaign was quite specific in its outline for which elements of the tax code it intends to target, including the corporate statutory rate, the top income tax bracket for high wage earners, capital gains rates for even higher earners, and changes to estate taxes. There appears to be a lack of unanimity between the moderate and progressive wings of the Democratic party regarding each of these elements, making it difficult to handicap how any final bill might look in terms of specifics. But change is expected, and the business and investing communities alike will be lobbying hard for any compromise that softens the tax hit.
Stocks Rally to Another Record High; Bond Yields Widened Again
In the meantime, stocks ended last week at another record high. The S&P 500® index gained 0.7 percent, bringing its year-to-date rise to 19 percent. Cyclicals and bond proxies led the way higher. Materials, financials, and industrials were joined by staples and utilities on the upside. The Russell 1000 Value index outperformed its Growth counterpart 1.1 to 0.2 percent. Helping matters was the July CPI report which, despite remaining elevated, did contain some evidence of moderation that lent support to the camp that insists higher realized inflation will ultimately prove to be temporary, most notably the Fed.
The yield on the ten-year Treasury note initially rose following release of the CPI on Wednesday, before receding to close two basis points lower on the week at 1.28 percent. Perhaps worth noting is the fact that high yield spreads widened once again last week, although the move was a modest four basis points. However, it was the sixth straight week of wider spreads dating back to the beginning of July, during which time the spread has widened by a cumulative 32 basis points off of a fourteen-year low. BBB spreads, in contrast, narrowed fractionally last week after having risen in five of the preceding six weeks. Overall, however, the move higher from its own fourteen-year low amounts to a rather benign seven basis points, suggesting any economic growth concerns remain subdued.
All Eyes are on the Federal Reserve's Next Policy Move
Speaking of economic growth, the Fed remains very much in the spotlight, as it edges closer to making a decision on whether and how to taper the pace of its bond purchases. It has no doubt welcomed the latest round of data on the health of the labor market, including the strong July jobs report, the falling weekly jobless claim totals, and the number of job openings relative to the number of available workers. Last week, Kansas City Fed President Esther George said, 'today's tight economy… does signal that the time has come to dial back the settings' of monetary policy, adding her voice to others that have recently been preparing the ground for a possible announcement in the weeks ahead. Expressing his preference for additional labor market data, however, Minneapolis Fed President Kashkari told Bloomberg last week that he would like to see a few more jobs reports like July's strong results. The Jackson Hole symposium is now just two weeks away, and although that venue has often provided a forum for policy announcements, it may be premature to expect something concrete on tapering intentions.
The next subsequent meeting of the FOMC takes place of September 21-22. That would allow for a look at the August jobs report, which may not provide enough definitive evidence of sustainable labor market momentum in the eyes of some FOMC members. Waiting a little longer would provide further insight into the impact on the labor market of the surging Delta variant of the Coronavirus, the end of extended unemployment benefits, and the reopening of schools. That would suggest that, assuming conditions progress as the Fed anticipates, an announcement could come at the FOMC's November meeting. And although that meeting is not accompanied by updated economic projections, as the Fed has reminded us in the past, all meetings are live.
Important Disclosures:
Sources: Factset, Bloomberg. FactSet and Bloomberg are independent investment research companies that compile and provide financial data and analytics to firms and investment professionals such as Ameriprise Financial and its analysts. They are not affiliated with Ameriprise Financial, Inc.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.
Some of the opinions, conclusions and forward-looking statements are based on an analysis of information compiled from third-party sources. This information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial. It is given for informational purposes only and is not a solicitation to buy or sell the securities mentioned. The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as advice designed to meet the specific needs of an individual investor.
A 10-year Treasury note is a debt obligation issued by the United States government that matures in 10 years. The 10-year yield is typically used as a proxy for mortgage rates, and other measures.
The Consumer Price Index (CPI) is an inflation indicator that measures the change in the total cost of a fixed basket of products and services, including housing, electricity, food, and transportation. The CPI is published monthly by the Commerce Department and is also commonly referred to as the cost-of-living index. Unless otherwise noted, CPI data in this report is one month trailing.
Investing involves risk including the risk of loss of principal.
Past performance is not a guarantee of future results.
An index is a statistical composite that is not managed. It is not possible to invest directly in an index.
Definitions of individual indices and sectors mentioned in this article are available on our website at ameriprise.com/legal/disclosures in the Additional Ameriprise research disclosures section, or through your Ameriprise financial advisor.
Third party companies mentioned are not affiliated with Ameriprise Financial, Inc.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, LLC. Member FINRA and SIPC.
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Ameriprise Financial Inc. published this content on 18 August 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 18 August 2021 17:23:05 UTC.
