Market Notebook

U.S. equity prices whipsawed on the week, dropping early and recovering almost exactly to the 20-day exponential moving average as measured by the instrument SPY. Bonds prices moved down sharply but remained near the bottom of a roughly defined range on comments from Federal Reserve officials regarding bond purchase tapering.

From a strictly technical perspective, both equities and bonds are at inflection points, and neither moves higher nor lower are favored in the coming week. The caution reminder regarding the purchase of equities through the end of the quarter remains valid as various entities position for quarter-end. On balance, the mentioned positioning could keep equities under pressure into quarter-end.

Given that the Fed has telegraphed the likely start and pace of tapering, one might assume bond market participants have largely factored tapering into prices.  Moves lower are possible as the details of tapering become solidified. However, it seems unlikely that tapering will produce a blowout of prices lower. 

Longer-term, the Conference Board’s Leading Economic Index for the U.S. rose sharply in August, suggesting that the real U.S. economy remains strong and likely will remain strong moving towards the end of the year. Factors of concern are labor shortages, chip shortages, the COVID Delta variant, and shipping delays. Companies could have a sluggish fourth quarter given some of the mentioned concerns.

All the best in the week ahead.