On the economic front, US data is still decent. Key PMI data have all stayed at higher levels, employment data was encouraging, possibly suggesting that the economy has recovered from the COVID pandemic. With the economy back to pre-pandemic levels, the current inflation problem should be the next issue pending resolution. Fed Chairman Jerome Powell’s view on the currently elevated inflation has shifted from ‘transitory’ to ‘could last longer than expected’. This suggests that monetary tightening could be more imminent, so as to counter the higher inflationary pressures as the Q4 energy crisis hits. 

According to the latest Fed Dot Plot, committee members have turned slightly more hawkish, interest rate futures market have also reacted accordingly, currently pricing in one rate hike by the end of 2022. All these point to a tapering announcement as early as November. The expected reduction in market liquidity could put further pressure on the market valuation levels and could result in limited upside for the US equity market in the short term. While we do expect the US market to perform in line with global equities, we would stay on the cautious side for the last quarter of the year as the downside risks do remain.