Wall street ease after an earlier increase!
Tuesday, the US season started with a positive sentiment that the market got from inflation numbers. Published data showing a slower-than-expected rise in US inflation. This data was welcomed at first, however later on add the uncertainty on what FED timeline will be after all for decreasing the asset purchases amount.
While COVID-19 new cases are increasing every day in both the US and EU, we are also entering the colder seasons and add concerns on economic recovery. On the other hand, after a slight increase in July inflation, today's published data from the Labor Department showed the slowest pace in rising prices. This news and data together telling us that while the market still needs support, inflation is not at the worrying levels that could stop the FED supports or decrease it.
On the other hand, we have to mention some ongoing concerns in the market.
First of all, inflation. Despite the flexibility observed in today's data, inflation is still high and above 5%. Especially when we are looking at Energy, transportations, and Stock prices, while we had just PPI at 8.3% last week, counting on the fast decrease of inflation levels will be a bit naive. That is the first reason to see discord among Fed members over when to begin tapering.
On the other hand, the latest news about democrats try to raise taxes, is not what can encourage the markets. As we remember about President Joe Biden's $3.5 trillion budget package, we have to remember the source of the required funding. "The plan would increase the top corporate tax rate to 26.5% from 21%, impose a 3-percentage-point surtax on people making over $5 million and raise capital-gains taxes—but without the changes to taxation at death sought by the Biden administration. The tax increase details were the last major missing piece in the Democratic agenda, and their release will accelerate lawmakers’ negotiations over which new spending to give priority to and which tax increases they find acceptable." WSJ
Considering all this, sending the market to the caution mood, however to is unlikely to change the FED main plan for tapering. End of the day, we have to mention that Republicans are not agreed with raising the government debt ceiling, which is mean that in any case, tapering will happen and not so late.
As of the closing, Dow Jones Industrial Average closed down by 0.84%, SP500 lost 0.57% and NASDAQ was lower by 0.45%