Last week was certainly a roller coaster ride for investors: from the S&P 500 hitting all-time highs, to two major tech stocks divisions and a market correction to top it off.
But while investors can relax poolside for the Labor Day holiday, strategists argue that there are a few key things to keep in mind in the coming week.
Election mode begins
Historically, analysts say that the day after Labor Day is not just to recover from its long weekend, it is officially the start of the election season, and markets are likely to be more vigilant about what is happening in Washington.
“While this is a year unlike any other, we often view Labor Day as the beginning of the home stretch of the presidential campaign season,” notes Bankrate.com senior economic analyst Mark Hamrick. “I think there is a valid debate as to whether the market is potentially expecting a Biden win or a Trump victory. But for investors willing to negotiate for the election, Liz Ann Saunders, Charles Schwab’s chief investment strategist, has a word of caution: “The economy determines what political priorities are, so I think it’s prejudicial to try Would be wrong. ” Degree. “
Analysts are already projecting a particularly volatile patch in the event of a contested result. In that sense, Samana suggests that “in many ways, the market has probably not started to discount only the level of uncertainty.”
Stimulus progress?
Senate Republicans are set to vote on their own legislation this week for another round of stimulus amid a deadlock on Capitol Hill over what the next package should look like. The bill is expected to be around $ 500 billion and will likely include more improved unemployment benefits, more loans from the Paycheck Protection Program, and funds for a vaccine, tests and schools.
Yet that $ 500 billion is still a far cry from the recent $ 2.2 trillion Democratic proposal, and strategists say the stimulus is largely in the markets.
If a deal is reached early, Hamrick believes that “the market could get a short-term boost from any positive development on relief, because what we’re really talking about is applying some much-needed first aid to the economy.” Points out.
But the problem may be that the markets are betting too much on a deal. With the current stalemate in Congress, “I don’t think not having [another stimulus package] comes at a price,” Sonders argues.
An inflation snapshot
The Fed has made clear with its new policy of keeping inflation around 2% that low rates are going nowhere – a boon to equity investors, which analysts have long called the only place to find. . performance. in this environment. That is why those like Sonders think that inflation figures shown in the Producer Price Index (PPI) and Consumer Price Index (CPI) (which track the average change in the price paid for goods and services to the consumer and to the producer over time) published on Thursday. and Friday, respectively, should be “quite interesting in both the long and short term.”
In the short term, Sonders notes that the PPI can give investors an idea of whether the manufacturing side of the economy is gaining momentum (he says it appears to be), while the CPI should give an idea of how prices are. . going up after closing it. But the longer-term problem that could mean “more inflation than people are expecting is that I think we’re moving from what I think has been a purely monetary policy regime … [to] the responsibility [of being ] Now on the tax side, “” says Sonders.
