Navigating the Open Seas
As any sailor will tell you when setting sail across the open seas, your experience in arriving at your destination is dependent upon the water conditions, the weather, and perhaps of most importance, the skill of the captain and crew. Investing and financial planning can be comparable to sailing – ultimately arriving at your destination is contingent upon market conditions and the expertise of those helping navigate your journey.
Like a sailboat, stock markets benefit from a strong tailwind which they did not necessarily receive this past week as second-quarter earnings reports continued in earnest. Earnings growth is on track for the best performance since the fourth quarter of 2009, when the economy was amidst the recovery from the Great Recession, however, reactions to strong results were somewhat muted as the market seems to expect big earnings beats stemming from outsized estimate cuts during the pandemic.
Setbacks in certain individual stocks were again a reminder of the importance of diversification as there were enough positive reactions to earnings and economic releases that the major indices were able to provide small gains for the week. While larger gains would be preferred, investors should be content with steady gains in the market that move them closer to their goals. This is reminiscent of a captain’s command to the ship’s helmsman to keep the current course, “Steady as she goes…”
Jobs, Jobs, Jobs
The key economic releases last week were primarily employment-related, providing clues on the strength of the post-pandemic recovery since economies are predicated upon the strength of the workforce. Nonfarm payrolls came in stronger than expected and the unemployment rate dropped, indicating the recovery remains intact and may be continuing to accelerate. Also of note was the labor force participation rate slightly increased, reflecting more people being active participants in the workforce. Bloomberg reported a record high 49% of small businesses had job openings in July, providing further evidence that those who want to work should be able to.
Labor shortages and supply chain constraints leading to input price pressures are holding back the potential of the recovery and a return to normalization. These conditions should continue to improve in the coming months, helping provide a further boost to growth. We continue to monitor the strength of the recovery and sustained economic expansion, incorporating findings into our investment management process.
The pace of earnings reports will be slowing since over 90% of the companies in the S&P 500 have reported earnings and greater attention will be given to economic releases over the next couple of months. There is still the potential for surprises to impact individual stock prices for those companies yet to report earnings. On the economic front, the focus this week will be on inflation with Consumer Price Index (CPI) and Producer Price Index (PPI) numbers being released which will provide further clues regarding the inflation situation and whether it is transitory or more sustained.
Escalating concern about the spread of the Delta variant and the implications it might have in the coming months is beginning to weigh on the markets. Given reopening momentum from high vaccination rates in the most vulnerable segments, higher natural immunity, and the reluctance of state and local governments to impose new restrictions, at this point the potential impact does seem limited. However, anxiety regarding further spread of the virus and the fear of restrictions could be a drag on consumer sentiment and spending, especially in the short term.
We continue our work of keeping abreast of market and economic conditions and positioning portfolios accordingly. It is said the wind and waves are always on the side of the ablest navigator; let us be the skilled navigator who helps you arrive at your financial destination.
Have a wonderful week!
Nathan Zeller, CFA, CFP®
Chief Investment Strategist
Secured Retirement firstname.lastname@example.org
Please contact us if you would like to review your individual financial plan or learn how the TaxSmart™ Retirement Program can help you.
Office phone # (952) 460-3260