INSIGHTS FROM FIRST FOUNDATION

A First Foundation Blog

The Week Ahead – Twenty Twenty-Won or Twenty Twenty-Too?

| 8/30/21 8:34 AM

Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.

There is a lot that has gone well thus far in 2021. The global economy is on much firmer footing, bolstered by strong economic growth and a labor market that continues to heal ahead of expectations. Most Children are back in school, and the stock market just hit its 52nd all-time high this year. However, as always, there are a lot of looming issues that continue to plague the news headlines such as the Delta surge in the Southeast, and the seemingly endless list of anecdotal data showing inflation is on the rise. I was optimistic that we had seen the worst of Covid-19 during the winter and was ready to declare “twenty twenty-won,” but unfortunately, the Delta variant being far more contagious is raging in certain geographies, straining hospitals systems and causing untold misery. If we examine other parts of the world such as the U.K. and India, whose Delta outbreaks started several months ahead of ours; their Delta cases have peeked and are now falling. This variant appears to burn brightly, but burns itself out relatively quickly.

Despite the fourth wave of the virus, the recovery continues to move along albeit at a slower pace. We have reduced our economic growth estimates from a blistering 7% for the third quarter down to 4-5%. Keep in mind, this is still about twice the trend rate of growth for the United States, but there is no denying that Covid has delayed (not derailed) the recovery to some extent.

Jerome Powell, Chair of the Federal Reserve, made it patently clear Friday in his Jackson Hole speech that he is not convinced by arguments that Fed policy will cause runaway inflation. Indeed, he repeated the FOMC's stated position that the test for pulling back on quantitative easing will be “substantial further progress" in the labor market. The essence of the speech was a robust defense of the idea that the surge in inflation will prove to be transitory. He also suggested that the long-term downward pressure on inflation caused by demographics and globalization are likely to continue: "While the underlying global disinflationary factors are likely to evolve over time, there is little reason to think that they have suddenly reversed or abated. It seems more likely that they will continue to weigh on inflation as the pandemic passes into history." Given the Fed’s clear desire to see the labor market return to full employment, we can expect no tapering of quantitative easing until November or December.

While Covid-19 is still a major issue, and we cannot declare victory over the virus, there is no denying the substantial progress we have achieved thanks to human ingenuity. In other words, this is not “twenty twenty-too.”

Employment is the key report this week. U.S. payroll employment likely climbed around +800k in August, and the unemployment rate probably edged down to 5.2%. After being dragged down by global supply chain issues, the Manufacturing PMI probably fell to 58.5% (well within expansionary territory). Vehicle sales, also impacted by supply chain dysfunction will see sales slip to around a 14.6MM annual pace.

Data deck for August 30–September 3:

Date

Indicator

Period

Aug 30

Pending home sales

Jun

Aug 31

Case-Shiller home price index (year-over-year)

Aug

Aug 31

Chicago PMI

Aug

Aug 31

Consumer confidence index

Aug

Sep 1

ADP employment report

Aug

Sep 1

Markit manufacturing PMI (final)

Aug

Sep 1

ISM manufacturing index

Aug

Sep 1

Construction spending

Jul

Sep 1

Motor vehicle sales (SAAR)

Aug

Sep 2

Initial jobless claims (regular state program)

Aug 28

Sep 2

Continuing jobless claims (regular state program)

Aug 21

Sep 2

Trade balance

Jul

Sep 2

Productivity (revision)

Q2

Sep 2

Unit labor costs (revision)

Q2

Sep 2

Factory orders

Jul

Sep 2

Core capital goods orders (revision)

Jul

Sep 3

Nonfarm payrolls

Aug

Sep 3

Unemployment rate

Aug

Sep 3

Average hourly earnings

Aug

Sep 3

Markit services PMI (final)

Aug

Sep 3

ISM services index

Aug

IMPORTANT DISCLOSURE INFORMATION    

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by First Foundation Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from First Foundation Advisors. Please remember that if you are a First Foundation client, it remains your responsibility to advise First Foundation, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. First Foundation Advisors is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the First Foundation Advisors’ current written disclosure statement discussing our advisory services and fees is available for review upon request, or at firstfoundationinc.com.  Please Note: First Foundation Advisors does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to First Foundation Advisors’ web site or incorporated herein, and takes no responsibility therefore. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Brett Dulyea, CFA, CAIA
About the Author
Brett Dulyea, CFA, CAIA
Mr. Dulyea serves as a Portfolio Strategist on the investment team and is responsible for conducting manager research and executing investment strategies for clients. As a member of the investment committee, he provides market commentary and investment insights. Mr. Dulyea’s specializes in advising client portfolios, defining investment plans, and communicating the firm’s investment viewpoints. Prior to joining the firm, Mr. Dulyea was a Director, Portfolio Manager at Deutsche Bank. In addition to working directly with clients, he was a member of the Fixed Income Strategy Group and managed customized portfolios for clients. He previously worked in the Wells Fargo Wealth Management Group as a Vice President, Senior Investment Strategist and at Merrill Lynch as a Vice President, Portfolio Manager. Mr. Dulyea earned his Master’s in Business Administration (MBA) from California Polytechnic University, Pomona and holds the Chartered Financial Analyst® (CFA) designation and the Chartered Alternative Investment Analyst (CAIA) charter. He earned his Bachelor’s degree from the California Polytechnic University, Pomona. He also served as an adjunct Professor of Finance at California Polytechnic University, Pomona for two years. Read more