Week Ending September 17th, 2021

Major stock indices ended the week modestly lower even after the CPI report showed that inflation moderated in August. Headline and core CPI remains at 5.3% and 4 % respectively on annual basis. Although some of the key contributors to recent inflation pressure, such as used car prices and away from home food services  moderated in August but it doesn’t mean that inflation is on a downward trend in the near term. I still believe that inflation will settle in at a much higher level than the levels experienced over last cycle.

I think Fed is going to start the taper before the end of this year and November is still on the table. And as I have been writing for last couple of months that investors should be ready for frequent pullbacks going forward. The direction of the market will depend more on the flavor of economic data releases although it is well understood that Fed is going to stay accommodative for many more months. I think investors are more concerned about earnings growth amid expectation of slow economic growth in the medium term rather than taper.

Let's see what we hear from Federal Reserve this Wednesday.