Market Update – 10/15/2021

The stock market rose this past week; we maintain the views of the previous two weeks: whether it can reach new highs or break below the current lows depends on economic performance during the ongoing epidemic.

The global supply chain continues to be affected. The Port of Los Angeles and Port of Long Beach, which account for 40% of the imports in the United States, are operating 24 hours daily hoping to alleviate the problem of supply chain congestion.

As energy shortages and supply chain congestion persist, more and more people believe that inflation is no longer temporary. Some even surmise that the Federal Reserve will raise interest rates to control inflation.

We believe that price increases will gradually slow down when the supply chain returns to normal. The September Consumer Price Index (CPI) rose 0.4% from the previous month, but core CPI only rose 0.2% after excluding 0.9% rise in food and 1.3% in energy costs. Simply put, price increases are currently concentrated in a few goods and industries affected by the epidemic, and the cause for overall price increases is not obvious.

Common price hikes are caused by the overheating of the economy; a rise in interest rates can cool down economic activity and slow down the price increase of goods. However, price increases caused by supply chain problems can only be solved by fixing the supply chain itself, not by raising interest rates.