Volatility persisted this week as members of Congress continue to debate the stimulus bills. With the deadline for raising the debt ceiling (Oct. 18) quickly approaching, markets are ripe with uncertainty. This, combined with heightened inflation concerns, slowing growth, and the prospect of reduced monetary stimulus has exasperated market volatility. Benchmark equity indices traded lower, with the S&P 500 down more than 1% mid-way through the week. Upward pressure on interest rates weighed on bond prices, with the Bloomberg U.S. Aggregate Index falling about 0.30%. Yields on the 10-year and 30-year Treasuries are now trading near their highest levels since June, with the 10-year yielding around 1.53%. For perspective, the 10-year yield started the year around 0.90%, rose to a yearly high of 1.76% in March, then rallied to a recent low of 1.15% in July. An early report from the Mortgage Bankers Association showed mortgage applications down 7% last week while refinancing activity fell to its lowest level in three months.

Economic growth in the U.S. has been resilient, but expectations have moderated in recent weeks due to the impact of the COVID-19 Delta variant. The eurozone is faring better than initially expected, with analysts forecasting around 4% growth in 2022. In Asia, lower vaccination rates and re-imposed restrictions continue to damper economic activity, further provoking supply chain constraints. On the jobs front, the ADP employment private payroll released on Wednesday morning showed that companies hired at an impressive pace during September despite fears about COVID-19 and the overall health of the economy. Private jobs rose by 568,000 for the month, significantly higher than consensus estimates of around 425,000. This report provides a precursor to Friday’s widely followed payrolls report, where economists expect 475,000 new jobs and for the unemployment rate to fall from 5.2% to 5.1%. As we wade into the fourth quarter, we can expect to see elevated volatility leading up to the debt ceiling deadline.

Source: GSAM, Daily Upside, JPM, Factor Investor

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