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Can we get much higher?

The S&P 500 has almost doubled in value since the beginning of March 2020, the onset of the Coronavirus pandemic. The index has continued to grind out gains throughout 2021, reaching its seventh positive month in August as investors favoured the blue-chip tracker. Retail investor participation has been a large contributing factor to this rally, as global ‘Stay at Home’ orders pushed individuals to a new form of entertainment: the stock market.

In the US, retail investors poured into stocks and Exchange Traded Funds (ETFs) over the summer, investing between $10-$15 billion every month between June and August. If these levels of inflows continue, it’s hard to see past a continuation of this record-breaking rally in the S&P 500. However, if investors begin moving away from equity ETFs and there are material outflows, this could mark a shift in sentiment and could be a cause for concern according to analysts at JP Morgan. There’s a similar pattern in European-listed ETFs, with inflows already $16bn ahead of the record annual inflows of 2019, despite having 16 weeks of the trading year still to run. Elsewhere, daily trading volume in Chinese A Shares has remained above $155bn since July, doubling the average daily volume of the last two years as other investment opportunities have seemingly dried up.

Bottom line: The risks of a reversal have been building; the spread of the Coronavirus Delta variant, supply chain constraints, and the mounting pressure for the Federal Reserve to begin tapering its asset purchases could come to a head in a historically negative month for markets. Strong economic data is also proving difficult to come by. Weaker retail sales and industrial production stats out of China, inconsistent jobs data from the US, and weak consumer confidence numbers recorded in the Eurozone all point to a somewhat slowing global economy. Downgrades to growth forecasts have also been prevalent, with Goldman Sachs cutting its US third-quarter forecast in half to 5.5% from 9.0%. The current downside risks do raise questions as to how long this rally can last, as industry experts begin to warn of a melt-up that could grind to a halt on the announcement of tapering by the US Federal Reserve in the coming months.

The week ahead


Sterling ended a second consecutive week higher against the US Dollar, notching an interbank high of 1.3892 against the Greenback after US data missed expectations on Friday afternoon. In contrast, the Pound traded in thin ranges all week versus the Euro, opening at the 1.1666 handle and closing at 1.1668. With a lack of headline data releases to come this week, attention will turn to the return of Parliament as Boris Johnson comes under fire from his own Conservative MPs over plans to hike national insurance. Other points of interest include HMRC’s update on government spending on Thursday and the Bank of England’s Treasury Committee hearings on Wednesday.

  • This morning, the UK’s Construction Purchasing Managers’ Index for September came in at 55.2 versus the forecasted figure of 57.4. Meanwhile, the Bank of England’s Monetary Policy Committee member Catherine Mann will speak just after midday.
  • Tuesday sees the British Retail Consortium release its y/y Retail Sales monitor, forecast at 3.2% down from 4.7% previously.
  • Also on Tuesday, the MPC’s Michael Saunders will be speaking at an online event hosted by Intuit.
  • On Wednesday, the BoE will conduct its quarterly monetary policy report hearings, where several committee members will testify on both inflation and the economic outlook.
  • To end the week, the UK’s Office for National Statistics will issue m/m Gross Domestic Product—forecast 0.5% down from 1.0%—and its 3m/3m Index of Services which is expected to fall from 5.7% to 4.7%.


Last week’s US Dollar sell-off also benefitted the EUR/USD pair, which gained 0.75% from open to close, trading as high as 1.1909—the first time the cross had traded above the 1.1900 level since July. This came despite a series of soft data releases, as Retail Sales and Services PMIs all came in under the expected figures. All eyes now turn to the European Central Bank this week, which is poised to shift its stance away from crisis mode following the region’s economic rebound and surge in inflation. The ECB had been more cautious than its US or UK counterparts on the subject of winding down stimulus, but this week’s meeting could present an opportunity for the hawks to force a slower rate of asset purchases.

  • This morning, German Factory Orders m/m beat the forecasted 0.9% fall to post a rise of 3.4%.
  • Tomorrow sees the release of German ZEW Current Conditions—expected to read at 35.3 down from 42.7—and German ZEW Economic Sentiment data, which is predicted to come in at 30.2 in a fall from 40.4 previously.
  • On Thursday, the ECB will release its Monetary Policy Statement, Main Refinancing Rate, and conduct a press conference about 45mins later.


The US Dollar’s trade-weighted index fell to the lowest level since early August as the return of risk sentiment to markets combined with softer-than-expected economic data took its toll on the Greenback. Friday’s headline Non-Farm Payrolls data came in at 235k against the forecasted 720k gain as the Delta variant continues to impact economic activity in the US. The weak jobs data was a blow to the Biden administration, which has come under fire in recent weeks following the US’ chaotic withdrawal from Afghanistan. Meanwhile, Biden faces the decision of whether to re-nominate Federal Reserve chair Jerome Powell for another term, with some progressive Democrats seeking a change at the US central bank.

  • Federal Open Market Committee member John C. Williams will be speaking about the economic outlook at a St Lawrence University webinar on Wednesday evening.
  • Weekly Jobless Claims are due on Thursday; last week’s figure read 340k.
  • On Friday, US Producer Price Index m/m and Core PPI m/m will finish off the data week. The core figure is forecast to fall from 1.0% to 0.5%, while the overall figure is predicted to drop to 0.6% from 1.0% last time.


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