Citi Wealth Insights

There are important differences between the late 1990s tech boom and where we are now.

With the market largely focused on the fate of Evergrande and any associated global economic impact, the FOMC meeting on Sep 22 was a relatively low volatility event.

US tax and spending negotiations is likely to deliver plenty of drama in the month ahead. The last of the COVID-19 related legislation, a US$3+ trillion Biden “social infrastructure” bill, is being finalised. There is a debt ceiling vote required to allow the US to keep borrowing. And then there is a bill to fund the government’s fiscal year 2022 initiatives.

Since COVID-19 struck, US equities have risen at a 25% annualized pace compared to the 11% pace during the prior decade of economic growth and recovery. A concentrated macro shock deeply depressed one sector of the economy. Widespread macro stimulus has generated a boom elsewhere while reducing fixed income yields of every duration.

Citi analysts expect that the announcement is likely pushed from September to November as the Fed awaits more employment data, with the actual taper itself probably starting in December and or January.

The Fed Chair Jerome Powell is focused on achieving “maximum” employment while downplaying long-lasting inflation risk, he said during his speech at the Fed’s annual Jackson Hole symposium “Macroeconomic Policy in an Uneven Economy” last Friday (Aug 27). His speech generated an “everything rally” on the same day where nearly every financial asset did well. Deeper into market recovery, such inclusive rallies are likely to become increasingly rare.