Weekly Market Update Highlights
• Even though the Fed expects multiple interest rate hikes by the end of 2023, we expect moderating economic growth could push out that trajectory.

• We do not expect Evergrande to cause global contagion, as the Chinese government is working through a restructuring to limit public disorder.

• Near term risks from Washington remain, but we are concerned about higher taxes rather than a U.S. credit downgrade.

• As the Delta variant subsides, we expect a near-term resurgence in economic growth.

Last week started with a substantial selloff over global risk concerns, but by Friday’s close the S&P 500 was back above its 50-day moving average. The S&P 500 (+0.5%) and DJIA (+0.6%) finished up, while the NASDAQ closed flat. The September FOMC meeting was in line with expectations, and investors remained confident after the Fed signaled that QE tapering will begin "soon." China’s Evergrande situation continues to evolve, but global contagion concerns have begun to abate.

Market Drivers And Risks
• Consistent with expectations, the Fed signaled that QE tapering will most likely start in November. We also learned that Chair Powell is still far from thinking about rate hikes.

• In the post-meeting press conference, Powell noted that “substantial further progress” for employment has been met and that policymakers broadly agree to gradually begin tapering QE. The decision could be made at the FOMC’s November meeting if the economy continues to improve. Policymakers are split on whether to raise interest rates next year, but 17 of the 18 members forecast at least one rate hike in 2023. Ultimately, there was minimal market surprise from last week’s meeting, with the Fed having previously telegraphed its intention to taper.

• The evolving situation with Evergrande continues to dominate headlines, but concerns about a potential contagion are fading.
• Concerns about the default of over $300 billion in liabilities weighed on global risk sentiment early last week, and the week ended with holders of Evergrande’s U.S. dollar debt still waiting for $84 million in payments. The Chinese government does not seem to be interested in bailing out the property developer, but it also does not want a disorderly collapse. Evergrande will likely continue to cause volatility as China works through a property and credit bubble, and as economic growth moderates. In addition, we expect continued volatility in cryptocurrencies following a selloff on Friday after the PBOC banned all crypto-related purchase and service activity and issued a ban on mining.

• There are few signs of a solution to a possible government shutdown or the debt ceiling. However, the good news is that the U.S. has $4 trillion of cash flow and $350 billion of interest costs, so there is plenty of cash to service the debt. 
• House Democrats passed a short-term funding measure and suspended the debt ceiling through next year, but the measures in the Senate lack enough Republican support to proceed. Government funding is unlikely to lapse and a continuing resolution should pass both chambers by the end of the month. Democrats must then outline next steps, which could include increasing the debt limit on their own or including it as part of a separate reconciliation package.

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