Consumer Spending Slows, Investors Digest Fed Comments, and the Soaring Cost of Equities

U.S. consumer spending came in slightly below expectations in July but remains above the pre-pandemic trendline and has continued to grow month-over-month. Meanwhile, the personal savings rate—a common measure of consumer sentiment—is normalizing as emergency stimulus measures begin to fade. These developments paired with soaring shipping costs and comments from Fed Chairman Powell have inflation expectations climbing—even as consumer sentiment and recovery expectations begin to sour—as investors prepare for the Fed to let the economy run hot for a stretch before introducing a QE taper. Over in the equities market, the S&P 500^® Index cyclically adjusted earnings yield is at its lowest point since the tech bubble, showing just how expensive equities have grown. Could we be in the midst of another bubble? All of these factors, paired with soaring Covid cases, are having an effect on bonds and the USD, which are both experiencing some trading-range turmoil. Economists will be looking to Friday’s payrolls report for more insights on whether these factors are also contributing to a larger economic slowdown.

1. The pandemic caused a dearth in spending, and it looks like the Fed is going to allow some back-filling before they launch QE tapering let alone rate hikes:

Source: The Daily Shot, from 8/30/21

2. Many Americans took their government support checks and saved them. Will the savings spike remain in savings similar to post WWII, or will the savings be spent?

Source: U.S. Bureau of Economic Analysis, from 8/30/21

3. The cost of shipping, both ships and containers, has gone berserk:

Source: Arbor Research and Trading, from 8/30/21

4. By several measures, the markets look expensive:

Source: Yale University, from 8/30/21

5. In September 2018 the Communications Sector was re-formed to include giants such Apple, Netflix and Facebook. Notice anything different since?

Source: The Chart Store, from 8/30/21

6. Bonds have been in a trading range turmoil as potential Fed actions, inflation fears, virus resurgence, solid earnings and economics all collide with seasonal weakness:

Source: The Chart Store, from 8/30/21

7. The USD has also been churning in a trading range:

Source: The Chart Store, from 8/30/21

8. Government regulation, crackdowns and “thou shalt nots” have significantly hurt Chinese equities:

Source: The Daily Shot, from 8/30/21