The better-than-expected third-quarter corporate earnings reports were evidence of a broad-based economic recovery causing investor psychology to improve and funds to flow from bonds into stocks. This has since reversed as the uncertainty of the spread and severity of COVID mutation Omicron remains unknown. The concern is that the supply chain of parts and goods produced in emerging markets may slow and deter global economic growth.
After declining in September, the equity market is now celebrating the economic recovery from the COVID virus and solid growth in U.S. corporate earnings. The S&P 500 Index is now up 22% for the year and is poised to move higher as economic growth is only hindered by distribution bottlenecks in imported and manufactured goods.
The S&P 500 Index is consolidating as Washington policymakers postpone important decisions on the budget ceiling and the infrastructure bills. The S&P 500 Index has grown this year as earnings and growth have supported valuations, but now, as fiscal and monetary policies change, we are seeing investor concerns. With fiscal policy, there are many supportive benefits of spending $500 billion on actual bridge and road infrastructure. However, the massive $3.5-trillion “human” infrastructure package is concerning due to higher taxes and escalating inflation. This plan is likely to be debated and downsized before passage – if at all.
The S&P 500 Index is consolidating as Washington policymakers postpone important decisions on the budget ceiling and the infrastructure bills. The S&P 500 Index has grown this year as earnings and growth have supported valuations, but now, as fiscal and monetary policies change, we are seeing investor concerns.
Economic indicators are proving that consumers and businesses are fueling the economy with pent-up demand on spending. Consumers are reacting to the vaccinations with robust spending on vacations, furniture, automobiles and homes, while businesses are trying to ramp up production and services to meet the need.
The S&P 500 Index gained 8.1% for the second quarter and 14.4% year-to-date despite concerns over Federal Reserve policy, fiscal spending and the spreading delta variant of COVID. Most investors see an improving economy with continued low interest rates being positive for corporate earnings.
The S&P 500 index was up slightly in the month of May due to growing investor confidence in higher 2021 corporate revenues and earnings. With the receding COVID pandemic, consumers and businesses are emerging from social-distancing protocols and accelerating their spending. This strong growth in demand for goods has led to inventory shortages in many cases. Temporary delivery delays for raw materials and components are constraining global growth. Employment is expanding, however, which means goods manufacturing should improve and service industries should gain momentum.
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