Halyard’s Weekly Wrap – 09/10/21

With the confluence of Labor Day on Monday and Rosh Hashana on Tuesday and Wednesday, we kicked off the week expecting a quiet one. Instead, corporations issued paper at a “break-neck” pace. For the week we saw 52 borrowers sell in excess of $76 billion in paper. Surprisingly, the large supply barely moved interest rates, as the 10-year Treasury note was less than 4 basis points higher for the week. The S&P 500 traded lower each successive day this week as forecasts for slowing economic growth dominated the headlines, but point-to-point the index was down approximately 1.00%. Hardly a correction!

We still consider the chance of the Fed tapering purchases this monthly as a solid maybe. Covid-19 continues to weigh on economic activity and workers continue to be incentivized to stay off the job, but the Producer Price Index released on Friday is likely to shake the FOMC’s confidence that inflation is transitory. PPI Final demand increased 8.3% over last year’s index value. Compounding the Fed’s likely discomfort is the calls from influential voices advising President Biden not to re-nominate the Chairman. This week Columbia Professor and Nobel Prize Economist Joseph Stiglitz made such a suggestion in an interview with Reuters. In the interview he suggested Cleveland Fed President Lael Brainard be given the nomination. While Brainard and Powell are about on par in terms of monetary dovishness, Brainard favors greater bank regulation and has the vocal support of populist Congresswomen Elizabeth Warren and Alexandria Ocasio-Cortez. Any disruption to the stock market is likely to be enough to cause Biden to replace Powell.