A very busy start of the trading week has Wall Street digesting a plethora of market-moving headlines that range from your typical COVID focus, a Sunday night 60 Minutes interview with Fed Chair Powell, China’s crackdown on big-tech, pricing pressures, an attack on an Iranian nuclear site, and a key meeting between President Biden and auto executives and chip makers.
Is a taper tantrum around the corner?
The biggest fear for many stock investors is the inevitable taper tantrum, which surprisingly received some clarity from St Louis Fed President Bullard. Bullard stated that a 75% vaccination rate could be a key threshold that allows for the tapering debate to begin. Currently, the CDC reports that 22.3% in the US are fully vaccinated, while 36.4% have at least one dose. The US is seeing a rise in cases across the many states, with a return to pre-pandemic life has been fully priced in for the summer.
US stocks could struggle in the short-term if inflationary pressures grow and if financial markets become fixated with the taper debate. A strong kickoff to earnings season might be expected by the banks later this week, but Wall Street is starting to look a little nervous.
Fed Chair Powell reiterated they would keep supporting the economy until recovery was complete. Powell emphasized that the economy is at an inflection point, noting the economy was about to start growing quickly and possibly produce close to one million jobs monthly for a string of months. Powell affirmed that support would remain until the recovery is complete. Despite a strong rebound, the Fed continues to stick to the plan that is targeting US short-term interest rates near zero through 2023 and maintain the USD120 billion monthly purchases until the economy makes substantial progress with its inflation and employment goals.
US stocks are stuck in wait-and-see mode. The White House summit on the semiconductor shortage shows the Biden administration’s ongoing engagement on how to address both short and long-term chip shortage concerns. With over USD50 billion expected to get put to work, the US is poised to ramp up US manufacturing capabilities.