Inflation and employment remain critical areas of focus for the Federal Reserve and Washington D.C. as politicians look to next year’s midterm elections. After a challenging September, equities roared back with an earnings season that is driving a wave of positive sentiment expected to last through the end of the year. The benefits of gold as a portfolio hedge are reexamined as inflation stakes its claim on the front burner.

US Treasury yields have been trending lower despite favorable fiscal policies and strong economic conditions. For its part, the Fed been dealing with an elevated stock market, rising commodity prices and an ongoing surge in inflation. To combat these issues, the Fed has indicated it may begin to raise interest rates as early as next year. Overall, corporate and municipal bonds had a strong third quarter although upcoming reductions in enhanced unemployment benefits may have a negative impact on municipal issues

September saw broad declines across equity markets due to a confluence of factors including inflation, higher Treasury yields, the COVID surge and a rise in corporate tax rates. As we look toward the future, equity investors would be wise to continue considering organizations that are poised to deliver higher earnings over time.

Although this year’s third quarter was flat, the S&P 500 is up significantly. The vitality of the US economy is driving our affinity for US Domestic Equities. Risks, however, are on the horizon along with significant unknowns and variables that may challenge sustained market growth. We continued to advocate portfolio diversification across asset classes.

The House Ways and Means Committee passed an estimated $3 trillion spending bill as part of President Biden’s Build Back Better Act. To finance these programs, the bill includes roughly $3 trillion in new taxes.

Once again consumer spending is shifting due to price gains and the surge in COVID-19 cases. However, stock performance remains strong despite waning economic data and stretched valuations. Added to the mix are economic policies in China that may negatively impact Chinese equities in the short term. As the summer comes to an end, investors would be wise to keep an eye on China’s policies as well as the Fed as it focuses on upcoming employment metrics.

Confidence will likely take a hit as the pandemic continues but economic growth is expected to continue in the U.S. The strong 2021 equity performance may lead to short-term choppiness while the appetite for fixed income likely remains muted during the coming quarters. The outlook for the U.S. housing market is mixed as some fear a near term bust while recent buying activity may indicate a longer-term trend.

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