U.S. growth and earnings will be closely watched this week as the debate about the momentum of the economy picks up steam. The expectation is for gross domestic product to grow 2.8% in the third quarter versus the 6.7% growth seen in the second quarter. This slowdown comes at a time when supply chain pressures and labor markets continue to be tight. Last week’s unemployment claims were the lowest since the beginning of the pandemic, and inflationary pressures have been on the rise. Despite the expected slowdown in growth, the Federal Reserve will likely announce its plan for tapering bond purchases at its meeting next week, given the current inflation data.
Attention this week will also be on corporate earnings and the continued back and forth in Washington regarding the administration’s tax and spending priorities. Given all of the counterbalancing forces, I continue to expect the equity market to trade choppily in a relatively tight range. Bond yields will likely push higher toward 2% before year-end due to inflation and decreased stimulus.
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