(Not So) Sweet Emotions
It is hard not to get emotional about money since your lifestyle depends upon it, especially for those nearing or currently retired, which is why emotions amplify when the stock market goes through gyrations. When the market moves up, the emotions are most likely happiness or euphoria, and depending upon the magnitude when the market moves down the emotions become worry or fear. However, if we do our jobs properly as your investment advisor, we have conveyed that stock market investments are meant to be long-term and therefore remove the short-term emotional swings, which consistently occur within the stock market.
Unfortunately, the major stock market indices closed out September with a monthly loss and the S&P 500 Index broke its seven-month winning streak. Even though the benchmark was lower for the month, it did manage a small gain for the quarter, making it six quarters in a row with positive returns. There were numerous market-moving events during the month, including a continued increase in coronavirus cases, concerns around the Federal Reserve tapering its bond buying program, persistent supply chain pressures, worries in China, and ongoing fiscal policy debate in Washington. While some of these issues might have a short-term impact on the market, they do not impact our longer-term views of the market. We still feel the economy is strong and bullish sentiment will prevail.
The economic releases of the past week pointed toward continued growth. Two key reports, Consumer Confidence and the Index of Consumer Sentiment confirmed consumer expectations remain strong. We follow these closely since they are an indication of expected consumer spending, which makes up about 70% of the GDP. Also positive, a preliminary reading of durable goods orders came in better than expected, which was surprising given the multitude of recent headlines regarding supply-chain issues.
The Fed’s preferred measure of inflation, Personal Consumption Expenditures (PCE), came in higher than expected and at the highest level since May 1991. This data coupled with Fed Chair Jerome Powell’s testimony before Congress last week where he acknowledged inflationary pressures remain elevated and more sustained that previously thought, leads us to believe the Fed may be prompted to act sooner than anticipated with an interest rate increase occurring as soon as the early part of next year. During his testimony, the Fed Chair also stated the Fed’s outlook for next year remains positive with growth rates above normal and continued reduction in unemployment.
With the calendar turning to October, we expect market volatility to continue. Eyes will be on Congress as political wrangling continues around proposed spending bills, funding the government and raising the debt ceiling. It is the last item, raising the debt ceiling, that has the most potential to cause movements in the markets. Not raising the debt ceiling prohibits the federal government from making interest payments on its debts, which would push it into default. We view this as being extremely unlikely since it is in the best interests of both parties to avoid this scenario and come to an agreement, but in the meantime, this will weigh on the markets. Also on the radar will be any signs of action from the Fed, specifically clues about tapering the bond buying program and how this affects interest rates.
We remain watchful and focused on the issues affecting the market, which is vital during times of volatility and especially given recent events. If you have not had your portfolio reviewed recently, please call us to schedule ensuring your plan remains on track. Our priority is to position your investments in a manner where you are comfortable and you do not experience the emotional roller coaster often associated with being invested in the markets.
Have a wonderful week!
Nathan Zeller, CFA, CFP®
Chief Investment Strategist
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