Stocks in the U.S. traded lower this week as several lingering headwinds continued to weigh on investors. Despite lower-than-expected inflation data, the S&P 500 was down about 0.50% mid-week, while the Russell 2000 (small cap index) was lower by about 1%. Consumer Price Index (CPI) data came in lighter than expected, with inflation rising 0.3% in August versus expectations for an increase of 0.4%. Industrial production rose 0.4% in August, and growth in July was revised down to 0.8%. Overseas, Chinese retail sales advanced just 2.5% year-over-year in August, representing the slowest rate of growth in over a year.
On the fiscal front, the back and forth persisted on the $3.5 trillion social spending plan, which will likely not be completed ahead of the debt ceiling expiration at the end of this month. If the plan passes as laid out on Monday, people who earn at least $400,000 or married couples earning at least $450,000 will see their top marginal tax rate rise to 39.6% from 37% starting next year and earnings over $5 million would see an additional 3% surtax. For corporations, the tax rate would rise from 21% to 26.5%. In addition, the capital gains tax (the tax on profit that investors realize from selling assets like stocks) would rise to 25% from 20% (Daily Upside). However, negotiations have already began and the final bill will likely be substantially lower than the $3.5 million price tag. Energy stocks rallied this week as WTI Crude jumped to about $73 per barrel. In bonds, yields trended lower this week with the yield on the 10-year Treasury note trading around 1.31% mid-week.
Source: GSAM, Daily Upside, JPM, Factor Investor
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