As global events unfold, several significant developments took place recently:
- * Senate Majority Leader Chuck Schumer has scheduled a debt-ceiling vote for Wednesday.
- * Senate Minority Leader Mitch McConnell has warned that he will not cooperate on raising the debt ceiling.
- * Chinese military aircraft have entered Taiwan’s air defense zone for the fourth consecutive day.
- * The White House has issued a warning to China regarding its provocations against Taiwan.
- * New signs of stress are appearing in China’s property market.
- * Oil prices are nearing three-year highs after OPEC+ rejected proposals for a significant production increase.
- * U.S. factory orders rose for the fourth month in a row in August:
The Global Market Index (GMI) witnessed a decline in September, dropping to 5.9% from the previous month, reversing the upward trend seen in recent months. This new figure represents a long-term performance forecast relative to the “risk-free” rate based on a risk-based model (details below).
* Democrats will continue to struggle this week with increasing divisions concerning Biden’s agenda.
* Broader signs of inflation pressures are beginning to show.
* Japan has elected a new prime minister: Fumio Kishida.
* U.S. auto sales plummeted over the past three months due to chip shortages.
* A significant leak of offshore data has revealed tax evasion strategies used by the wealthy and powerful.
* China is increasing pressure on Taiwan with a surge of provocative military flights.
* Trading has been halted for shares of Evergrande, the troubled Chinese property developer.
* The U.S. 60/40 stocks/bonds benchmark suffered a rare loss in September.
* A key inflation metric tracked by the Fed reached a 30-year high in August.
* The ISM Manufacturing Index increased in September, indicating the strongest growth since May.
* U.S. consumer spending sharply rebounded in August:
Jonathan Pelson
Summary via publisher (BenBella Books)
As the world adopts transformative 5G services, concerns have arisen that China might disrupt—or even access—the wireless networks that support critical communications in sectors like healthcare, finance, and even defense. This memoir by a telecommunications industry veteran reveals how the situation developed and explores possible changes. In “Wireless Wars,” author Jon Pelson discusses America’s pioneering role in cellular technology, its lessons imparted to China, and the subsequent market consequences. He shares previously untold accounts from industry leaders and scientists that highlight how China displaced and undermined competitors, allowing it to dominate the market and advance its surveillance capabilities. Additionally, Pelson sheds light on China’s strategic efforts to gain influence over key political, corporate, and military figures worldwide to control competing networks.
- Small-cap stocks and commodities continue to outperform.
- All our strategy benchmarks faced significant setbacks.
Small-cap stocks and commodities experienced a strong rally this week: In contrast, our extensive global ETF portfolio struggled during the trading week ending October 1. For details about all strategies and metrics, see this summary.
In September, global markets faced their largest decline in a year. The only exception to this bearish trend was commodities, which showed a notable increase last month. Cash, predictably, remained flat. Apart from this, major asset classes predominantly experienced negative returns throughout the month.
* House Speaker Nancy Pelosi postponed the infrastructure spending vote.
* President Biden signed a bill to prevent a government shutdown.
* Federal Reserve Chairman Jerome Powell acknowledged potential “difficult trade-offs” for policy if inflation does not stabilize.
* North Korea is continuing its missile testing.
* Eurozone inflation surged to a 13-year high in September.
* U.S. GDP growth was revised slightly upwards for the second quarter.
* The Chicago PMI dropped to a seven-month low in September.
* U.S. jobless claims continued to rise last week, reaching the highest level since early August:
While international diversification in bond allocations is an appealing concept, it hasn’t been faring particularly well for U.S. investors in 2021, especially when examined through a lens of various ETFs.
* Senate Majority Leader Chuck Schumer announced a deal to prevent a government shutdown.
* Democrats are now being viewed as the main threat to President Biden’s economic agenda.
* Central bankers anticipate that supply-chain problems will extend the period of higher inflation.
* China’s manufacturing sector experienced slight contraction in September, according to official data.
* An alternative manufacturing survey indicates that the sector stabilized in September.
* The UK revised its economic growth upwards for the second quarter.
* Family offices are increasingly exploring investments in cryptocurrency.
* Pending home sales in the U.S. surged in August, surprising many analysts.
* The yield on the U.S. 10-year Treasury continues to rise, recently reaching a new three-month high:
Combining bonds and stocks has long been a staple of asset allocation strategies, primarily due to the historical negative correlation between the two asset classes. Typically, when stock prices decline (or rise), bond prices tend to behave inversely. However, this correlation is not fixed and can vary over time. Recent trends indicate a shift towards positive correlation. If this persists, the diversification benefits typically associated with a stock-bond portfolio could diminish significantly—and potentially vanish altogether—depending on the extent and duration of this positive correlation.
