A late week rally allowed the S&P 500® index to recapture its 100-day moving average, relieving some of the anxiety caused by the 5 percent drawdown between September 2nd and the 30th. The index was still lower for the full week, falling 2.2 percent, its third weekly decline in the last four. That Friday’s rally came on the first day of October raised a degree of optimism that the market can put September’s weakness behind it, historically the weakest month of the year. Friday’s rally was led by the most economically sensitive sectors.

Anticipation of movement on the fiscal policy front last week fizzled, as Democrats were unable to reach agreement on the ultimate size of the President’s proposed $3.5 trillion social infrastructure package. Negotiations seem to be centered around a smaller package of around $1.5-2.0 trillion. House leadership was forced to postpone a vote on the $1 trillion hard infrastructure bill that has already passed the Senate, until the end of October, well beyond the initial target of September 7. Congress did, however, pass a continuing resolution to keep the federal government operating until December 3. No progress was made on raising the debt ceiling, with the Treasury expected to run out of cash on October 18.

A Series of Negative Headlines Made a Rough Week for the Fed

It was not a great week for the Federal Reserve, either. For an institution that relies on the explicit trust of investors and ordinary citizens alike, the presidents of both the Boston and Dallas regional Federal Reserve Banks retired on Monday after it was reported that both had engaged in securities trading that, while apparently within the Fed’s ethical guidelines, raised the appearance of impropriety. And on Friday, Bloomberg reported that Fed Vice Chair Clarida did something similar back in 2020, at the start of the Fed’s emergency pandemic response. And on Tuesday, Massachusetts Senator Warren called Fed Chair Powell a dangerous man to head up the Fed because of his record of regulatory oversight of the banking system, saying she would oppose his renomination. Powell’s term expires in January.

Nor was it a great week for the Fed in terms of rising inflationary pressures, which the Fed continues to believe will prove to be transitory. The August core PCE deflator, the Fed’s preferred inflation gauge, remained at 3.6 percent over the trailing twelve months, its highest level in 30 years. The headline rate rose to 4.3 percent, up from 4.2 percent in July, also the highest in 30 years. Nevertheless, the spike in bond yields that began after the Fed meeting two weeks ago, peaked early in the week, before moderating. The yield on the ten-year Treasury note closed on Friday at 1.46 percent, after reaching 1.56 percent on Tuesday. Prior to the Fed meeting it stood at 1.30 percent. The two-year note traced a similar path, peaking at 0.29 percent on Thursday, before ending the week at 0.27 percent. Prior to the Fed meeting it stood at 0.22 percent. In early trading this week, they are yielding at 1.50 and 0.27 percent respectively.

Economic Activity Appears Generally Sound; Investors Await the September Employment Report This Week   

Otherwise, it was a generally good week for the economy. Durable goods orders in August exceeded expectations, and the September ISM manufacturing sector report rose for the second straight month, following a moderating trend from the end of the first quarter, although it had remained at a strong level throughout. Personal spending rebounded in August following a decline in July, and home prices remained firm in July, while pending home sales rose in August. Not everything was firmer, however. The Conference Board’s consumer confidence survey fell for the third straight month in September, although the University of Michigan’s Consumer Sentiment Survey rose for the first month in three, following a sharp decline in August. Motor vehicle sales declined for the fifth straight month, leaving them 34 percent below April’s level. And initial jobless claims rose for the straight week, albeit modestly.

This week’s economic calendar is headlined by the September jobs report. The Bloomberg consensus anticipates the creation of 470,000 new non-farm jobs, twice the September total. The unemployment rate is expected to drop slightly to 5.1 percent. Chair Powell has said that the Fed has “all but” achieved its objective regarding progress in the labor market. This week’s jobs report will be the last the Fed sees prior to its November meeting, but a report that is at or near consensus would seem to clear the way for an announcement of the commencement of tapering.

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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 ISM manufacturing index, also known as the purchasing managers' index (PMI) is an estimate of manufacturing for a country, based on about 85% to 90% of total Purchasing Managers' Index (PMI) survey responses each month. It is considered to be a key indicator of the state of the U.S. economy.

The personal consumption expenditure (PCE) measures of the prices that people living in the United States pay for goods and services. The PCE price index is known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior.

The Consumer Confidence Index (CCI) is a survey measures how optimistic or pessimistic consumers are regarding their expected financial situation. It is based on consumers perceptions of current business and employment condition, and their expectations for business, employment, and income for the next six months. 

The Michigan Consumer Sentiment Index (MCSI) is a monthly survey of consumer confidence levels in the United States. It is a statistical measurement of the overall health of the economy as determined by consumer opinion. It takes into account people's feelings toward their current financial health, the health of the economy in the short-term, and the prospects for longer-term economic growth, and is widely considered to be a useful economic indicator.

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 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.

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