Economic Review: October 2021

Economic Review: October 2021


Federal Reserve Chairman, Jerome Powell, announced that the timeline to start tapering the $120 billion monthly asset purchase “may soon be warranted.”  It could be appropriate to begin reducing the pace of asset purchase later this year, as inflation is running close to the Fed’s price-stability goals.

The short-term interest rate remains near zero, as the Fed will continue its accommodation policy and steadily monitoring data for signs of persistent broad-based inflation.  Inflation has been a concern for the past months. While the September data are not available yet, the August Consumer index rose 0.3 percent in August or 5.3 % over the past 12 months (

The vote on the infrastructure stimulus, combined with the prospect of a government shutdown, is creating some volatility. It is more likely that an extension of government funding will be granted while a bill for continuing resolution is negotiated.

While the ten-year Treasury yield increased about ~20 bps to 1.5% from last month, it still compares relatively low to a dividend yield of 1.4% for the S&P 500 index.

A relatively high broad equity market valuation, driven by the top ten largest companies, lowered the dividend yield well below the historical average.

The top ten most significant S&P 500 index constituents, including AAPL, MSFT, AMZN, FB, and GOOG, continue driving the equity market valuation relatively pricey, evidenced with a P/E ratio of ~29x compared to the current index average of ~20.5x.

Earning growth, supported by margin improvements and higher revenue, is driving the valuation of the S&P 500 index.

Over the past few months, the  Chinese government has imposed restrictions on private tutoring, technology, and cybersecurity firms.  These actions have created market volatility as the Chinese seek to control data and technology.

Source: BlackRock Advisor Center/ American Funds/ Federated Hermes/ Federal Reserve Bank of Atlanta/J.P. Morgan Asset
Management. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, under their 
individual assumptions of projected appropriate monetary policy, September 30, 2021.  
This commentary contains forward-looking statements which indicate future possibilities. There is no guarantee views 
and opinions expressed herein will come to pass.


Patrick Baumann, CFA® Chief Investment Officer



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